Credit Suisse Group (CS)

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See all Bulls Reasons Bulls: Reasons To Buy CS Raises Capital after IBank downfall 0% agree CS Raises Capital after IBank downfall After losing 1.3 CHF billion in Q3 2008, CS announced it raised $8.75 billion in capital from Qatar Holding LLC, Koor Industries Ltd., and Olayan Investments Co. of Athens (all existing shareholders). With this, CS is projected to have a huge EPS growth in the upcoming year. View or Edit Reason 0 votes 0% agree Heading into fast-growing Asia 0% agree Heading into fast-growing Asia Credit Suisse has maintained a strong global presence, and continues to extend its influence in developing markets in Asia and South America, which gives CS potential for substantial profits and growth in the years to come. View or Edit Reason 0 votes 0% agree Cost-cutting 0% agree Cost-cutting Credit Suisse Group's One Bank Delivery initiative has succeeded in consolidating the business, cutting costs by eliminating overhead and administrative expenses. At the same time, the One Bank system should begin boosting revenues, as clients from each division can be... read more View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Past profits unsustainable 0% agree Past profits unsustainable High profits in 2006 and 2007 are likely to be unsustainable, as they are based largely on the strength of the overall market. There is no reason to believe that revenues will continue to rise, especially given the weak U.S. housing market. View or Edit Reason 0 votes 0% agree Potential pitfalls from risk 0% agree Potential pitfalls from risk The bank's trading desk has been undertaking more significant investment risks, which could pose a problem if the market turns sour. Since Credit Suisse is exposed to great volatility, they could stand to lose a lot of money extremely quickly if market conditions prove unfavorable. View or Edit Reason 0 votes 0% agree Reorganization will bear fruit 0% agree Reorganization will bear fruit Credit Suisse is in the middle of a massive reorganization campaign, which includes the One Bank initiative as well as internal consolidation within the asset management and private banking divisions. So far, CS has been making great progress through this restructuring... read more View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Are you interested in selling 1108 6th St.Parker AZ 85344? an reo [Dismiss] [Done] Roland Rasi [Dismiss] [Done] See All Suggestions

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Credit Suisse Group (NYSE:CS) is one of the world's leading banking institutions, headquartered in Zurich, Switzerland. Specifically, the firm advises corporations on merging with or acquiring other companies, 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). Credit Suisse also has the distinction of being the second-largest wealth manager in the world with $1.54 trillion in client assets under management as of December 31, 2007.

After struggling with high costs and mediocre revenues in the earlier half of this decade, Credit Suisse has engineered an impressive turnaround. Over the past two years, management has made significant structural changes in order to decrease costs and increase profitability. Changes include, the consolidation of administrative expenses across divisions, the removal of divisional silos to encourage more intersegment cross-selling and the rebranding of Credit Suisse's private bank under the CS name. These efforts combined with a buoyant market led to record profitability in 2006.

Despite the internal reorganization efforts, Credit Suisse saw its net income decrease almost 19% in 2007 as a result of global economic conditions. With the collapse of the U.S. subprime mortgage industry and subsequent tightening in global credit markets, financial firms like Credit Suisse have faced a challenging business environment in 2008; Credit Suisse posted net losses of over $2 billion in the first nine months of 2008.^[1] The goal now will be to navigate the turbulent markets and limit risk while growing more stable areas of its business.

[edit] Business Model

The Credit Suisse Group serves clients around the world through three divisions: investment banking, private banking, and asset management. In 2006, Credit Suisse launched the One Bank Delivery initiative, which integrated the bank's three divisions under a common administration and leadership. The One Bank initiative has lowered administrative costs and boosted efficiency, and the initiative has also united all of the bank's operations under the Credit Suisse brand name (previously, the investment bank operated under the separate name Credit Suisse First Boston). Another primary goal of the One Bank policy is to promote cross-referrals of clients across the divisions of the company, in order to offer services from all three Credit Suisse divisions to all clients, corporate, institutional, and individual.

[edit] Investment Banking

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 investment bank saw a 19% fall in net income from 2006 to 2007, due to declines in demand for its advisory and underwriting services. Rough market conditions were mainly responsible for the decline in revenues in this division, since it was much harder to raise money for these sorts of transactions. As a result, Investment Banking contributed just 32% of Credit Suisse's 2007 net income even though it accounted for 49% of net revenues.

[edit] Private Banking

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. In total, the Private Banking division accounted for 33% of net revenue and 37% of net income in 2007.

[edit] Wealth Management

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.

[edit] Corporate & Retail Banking

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.

[edit] Asset Management

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. This division brought in 6% of Credit Suisse's 2007 revenues and accounted for 2% of total pre-tax income.

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.

[edit] Centers of Exellence

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.

[edit] Trends and Forces

[edit] Global economic growth and emerging markets

Global gross domestic product (GDP) increased by an estimated 4.9% over the course of 2007.^[3] 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.

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.

• In Latin America, Credit Suisse has acquired a majority interest in Hedging-Griffo, one of the largest asset management and private banking firms in Brazil.
• In Moscow, Russia, CS initiated an onshore wealth management business in September 2006 to complement the existing investment banking business there.
• Credit Suisse also partnered with Standard Bank in South Africa to expand its equities business. This partnership gives CS's clients access to the South African equities market, which is a component of many emerging market indices.
• In 2006, in the Middle East, CS expanded its onshore activities in Lebanon and Qatar to offer a full range of investment advisory services and products.
• In China, CS helped facilitate the IPO's of the Industrial and Commercial Bank of China Limited, China's leading commercial bank, and China Construction Bank. The latter was the world's largest IPO in 2005.
• Also in China, Credit Suisse won regulatory approval to set up a joint venture with Founder Securities in China. Under the terms of the deal, Credit Suisse will be able to underwrite debt and equities offerings in China's domestic capital markets.^[4]

[edit] Housing market and subprime fallout

With the slowdown of the US housing boom, and the slower growth in house values, the U.S. economy is experiencing the "home equity effect," where homeowners perceive their house values to be lower than they anticipated, and therefore perceive themselves to be relatively less wealthy. This drives down consumption, which pulls down the economy in general. Although this effect originates in the U.S., it has the potential to affect global financial companies such as Credit Suisse through a decline in credit quality.

The downturn in the U.S. housing market, combined with fallout in the subprime mortgage industry has led to widespread losses for financial services firms. In 2007, an increasingly large number of subprime borrowers were defaulting on their mortgages as they saw their payments jump. This impacts financial services firms as a result of the use of mortgage-backed securities, or securities whose value is tied to a bundle of mortgages. When more mortgages began entering default, these securities saw their values decrease, often substantially. Many firms made big bets on these potentially lucrative securities and lost a lot of money as a result. Through 2007 and into 2008, the effects of the subprime collapse had led to a global credit crunch and fears about a larger economic slowdown. Credit Suisse, as a financial services firm, would be significantly impacted by a slowdown in economic activity.

[edit] Benefit from low interest rates

Interest rates can be thought of as the cost of borrowing money. Though the impact of interest rates spans across the economy, businesses and lenders are particularly sensitive to fluctuations in interest rates. As interest rates increase, businesses are less likely to issue debt or equity given that the price of borrowing has increased. Interest rates in the U.S. have, however, been fairly low since 2004, which has played a significant role in driving business activities. Credit Suisse has benefited from high levels of mergers and acquisitions, underwriting, and IPO activities over the last three years. The U.S. federal funds rate cuts in late-2007 and early-2008 by the U.S. Federal Reserve hope to revitalize this trend of strong business activity, which would benefit Credit Suisse's U.S. operations. Additionally, economic uncertainty in Europe and the U.K. has led their central banks to lower rates as well, though not by as much as in the U.S.

[edit] Competitors

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. In the first nine months of 2007, Credit Suisse came in 7th worldwide in terms of the value of the completed mergers and acquisitions it advised.

Note: Information for Goldman Sachs Group (GS) is based on its fiscal year, which ended on November 30, 2007.

[edit] References

1. ↑ Q2008 Financial Report - Credit Suisse
2. ↑ Financial Report 3Q2008 - Credit Suisse
3. ↑ IMF World Economic Outlook (WEO) Update, January 2008
4. ↑ Credit Suisse Joint Venture Cleared by Chinese Regulators - WSJ.com