Credit Suisse Group (NYSE:CS) is one of the world's leading banking institutions and is the sixth largest wealth management firm in the world in terms of assets under management with $612 billion. The Swiss firm advises corporations on mergers and acquisitions, facilitates client equity and fixed income trading, manages assets for institutional investors and engages in both long-term (private equity) and short-term investments (propriety trading).
In 2010, Credit Suisse reported a net income of CHF 5 billion, driven by growth in its Swiss Corporate and Institutional Clients business and increased market share in its Investment Banking business.
The Credit Suisse Group serves clients around the world through three divisions: investment banking, private banking, and asset management. Credit Suisse promotes client cross-referrals across the company by having the three divisions operate under the Credit Suisse brand name. Their clients can include individuals, institutions, and corporations.
Credit Suisse's investment bank operates in 57 locations and 26 countries and is employed by clients running the gamut from large corporations to governments to financial institutions. Credit Suisse offers a wide range of financial services, including debt and equity underwriting, mergers and acquisitions (M&A), sales and trading, divestitures, and investment research.
The growth achieved by CS's Investment Banking division is highlighted by its ranking in 2010 as number one in announced M&A in the Americas and number three globally. CS is also ranked in the top five in global equity and underwriting and number two in Europe, Middle East, Africa, as well as top five globally in investment grade and high yield underwriting and number one in emerging markets underwriting and advisory.
Credit Suisse's private banking operations are split into two subdivisions: wealth management and corporate & retail banking. Credit Suisse is the second-largest wealth management firm in the world and a leader in corporate & retail banking in Switzerland.
With 160 offices worldwide, including approximately 80 located in Switzerland, Credit Suisse offers a range of wealth management services to fit the needs of high net worth individuals around the globe. The bank's products and services include pension planning, life insurance products, inheritance advice, and tax planning. Credit Suisse's comprehensive advisory system includes both asset and liability management.
Credit Suisse Group's wealth management subdivision also includes an integrated independent private bank, Clariden Leu, which serves high net worth clients in Switzerland and 17 other countries.
In Switzerland, Credit Suisse serves its corporate and retail banking clients with 215 banking branches throughout the country. An online network allows clients to access and manage their accounts securely from any location, at any time. Corporate advising services for small and medium-sized corporate clients are available at over 40 of Credit Suisse's branch offices, and advising for large corporate clients is centered in two regional offices. Credit Suisse also offers consumer finance services through BANK-now, which supplies individual clients in Switzerland with private credit offerings and car leasing.
Credit Suisse's asset management division operates in more than 20 offices in 19 countries. Relationship managers are assigned to specific clients, and are responsible for proposing and implementing investment solutions. Clients range from institutional and individual investors to governments and corporations. Products and services in the asset management division include investments in fixed income (investments that offer a fixed, predetermined rate of return, such as bonds and money market instruments, including U.S. Treasury bills and U.S. government bonds), equities, and alternative investments.
Credit Suisse has been reorganizing its asset management business to focus on alternative investments. These alternative investments include real estate, hedge funds, private equity, and volatility management. Credit Suisse engages in both in-house and joint asset management ventures with other firms.
Credit Suisse has also taken a step to streamline its operation in the increasingly global market. It has opened four centers of excellency that support the business office in New York. The centers are located in the following cities: Raleigh, North Carolina; Pune, India; Wroclaw, Poland; Downtown Core, Singapore. The roles of the centers range from analytics, finance, product control, IT, and operations. The centers have experienced rapid growth in both number of employees as well as support functions offered. Credit Suisse hopes to leverage its talent worldwide to provide superior and immediate support to its business functions.
Regulation may alter Credit Suisse's proprietary trading, hedge fund and private equity investments, and charge the company money directly Additional or increased regulation can cause the bank to alter its operation or cause it to pay fines directly.
All holding banks will be prevented from engaging in proprietary trading and in any trades where there is a "material conflict of interest". In addition, "material exposure to high-risk assets or high-risk trading strategies" will be banned. While the impact may be large, the true extent depends on the interpretation and implementation of the regulation.
Other regulation may place limits on the extent to which banks may invest in hedge funds or in private equity funds. Furthermore, regulation imposing a fee to financial institutions that keep their money in the Federal Reserve would increase the cost of operation for Credit Suisse.
As the world economy as a whole expands, consumers and firms have more wealth to spend and invest, which translates into increased demand for financial services like those offered by Credit Suisse. The strength of the world economy has promoted quicker recovery in Western Europe, which benefits Credit Suisse in the form of higher revenues from net capital inflows, as well as inter-generational wealth transfers, which will boost the revenue generated by the inheritance planning services of Credit Suisse's private banking division.
CS has since expanded by providing financial advisory services to countries with higher economic growth, such as:
Credit Suisse's presence overseas is large and growing: Investment banking is well positioned to benefit from the increasing importance of these markets to the global economy, as well as their rapid growth and high profit potential. Capital investments tend to be subject to diminishing marginal returns, meaning that the more capital that has been invested in an economy, the smaller the benefit of additional capital investment will be. Since emerging markets typically have very small capital stocks, capital investment has the potential to be extremely lucrative. Credit Suisse has focused and made key investments in India, South Africa, and China
Investment banks, particularly those with significant mortgage securitization practices, are very sensitive to the residential real estate market. Mortgage-backed securitization (MBS) is the bundling of mortgages for sale to third parties. When the housing market goes down, the value of the underlying mortgages backing these securities falls as well. Moreover, the overall number of mortgages also decreases.
Housing loans have traditionally been a strong source of revenue for banking firms. With the current interest rate environment, owners of real estate are selling to take advantage of the high short-term rates. With low interest rates in the future, prospective home owners are staying out of the market and waiting for short-term rates to drop before looking for a loan. This over-arching attitude has weakened the housing loans business for banks, such as Morgan Stanley.
Interest rates can be thought of as the cost of borrowing money, as interest rates increase, businesses are less likely to issue debt or equity given that the price of borrowing has increased, which dampens the overall demand for mortgages and other home loan products. The lowering of the U.S. Federal Funds Rate should, in theory, help to stimulate demand for loans and lower default rates by allowing people to refinance their homes at lower rates. CS stands to benefit from lower interest rates since they can afford to lend out more money. By lending more money, CS can collect interest on its loans.
Rising corporate income tax rates directly increase costs for taxes paid to the government, which decreases the amount of profits left for banks to fund investments and reinvest in operations. However, changes in tax law can also benefit banks. An increase in the capital gains tax might cause venture capitalists, fund managers, and private equity groups to push for IPOs in the short term. The goal would be to execute such deals before the capital gains tax rises.
Credit Suisse Group is one of the world's largest banking institutions. Its private bank is the most profitable in the world, which includes the world's second largest wealth management business. Credit Suisse also competes with investment banks for M&A advisory and debt and equity underwriting services.
Credit Suisse competes with other banks across private and investment banking and may compete with more than one division (i.e. JP Morgan and Bank of America compete across private and investment banking). Some of Credit Suisse's competitors include: