Credit Suisse’s Cautiousness Leads to Lower Capital and Wealth Markets

(Bloomberg) —

Credit Suisse Group AG’s newfound risk aversion is having a ripple effect on the lender’s ability to win clients in some of its most profitable businesses.

The Swiss lender’s capital markets revenue fell 48% in the fourth quarter from a year earlier, in part because the more cautious approach taken following the blowouts in early 2021 hurt the leveraged finance business, a traditional area of ​​strength.

The general decline in funding for blank check companies has also taken its toll, the bank said Thursday, after posting the biggest quarterly loss in about four years.

Read more: Credit Suisse warns of wages and costs after $2.2 billion loss

Changes in risk limits have also resulted in a significant unwinding of loans to high net worth clients, particularly in Asia, where clients generally adopt higher leverage trading and investment strategies, and contribute to an outflow of active there.

Credit Suisse has already withdrawn $2 billion in capital from its investment bank and plans to use it to expand its wealth management business, including increasing lending to these clients. Chief executive Thomas Gottstein said on a call with analysts that he sees great growth potential in lending to high net worth clients in the Middle East and parts of Asia for 2022.

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The bank hopes to capture recurring asset management and lending revenue growth in less risky products, such as Swiss mortgages, secured Lombard loans, asset lending, certain single equity loans and structured loans, he said.

Gottstein also pointed to mergers and acquisitions activity as a driver of growth this year. Revenue from the advisory business rose 51% in the fourth quarter, helped by higher revenue from M&A deals completed in a record year for deals.

Trading suffered as markets normalized from the pandemic-fueled volatility of the past two years. Fixed income sales and trading fell 38% from a year earlier, while equity trading fell 26% due to the bank’s exit from prime brokerage. Both are steeper declines than their Wall Street counterparts. Chief Financial Officer David Mathers said the bank had completed two-thirds of its exit from the core business.

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