Three banks in an unlikely constellation: Credit Suisse, Deutsche Bank and Standard Chartered, whose new CEOs all have to get ‘their’ banks in shape for the future. At the end of the day, Credit Suisse could be the big winner.

Unknown in recent banking history, three globally active European financial institutions have new bosses, each one mulling over major strategy plans and expected to announce what will happen in the next few weeks: Tidjane Thiam (pictured) at Credit Suisse (CS), John Cryan at Deutsche Bank and Bill Winters in the British-Asian Standard Chartered.

What they have in common is that all three CEOs have been in the job for more or less 100 days, the honeymoon is over, and shareholders as well as employees are waiting for clear statements on the new strategy. No surprise that all three bosses have been under serious pressure sincetheir first working day.

Too big, too inefficient, too many risks

Thiam, Cryan and Winters have to reduce the complexities in each of their three banks and use capital more efficiently. Standard Chartered focused on growth for too long, leading it to take on (too) high risks and not to correct its misallocations.

At Deutsche Bank the investment bank has become too large for today’s conditions. It is carrying out business that is not profitable any more under the new capital requirements or does not even generate the capital costs. In the domestic market, Deutsche Bank has the Postbank appendage that has never really fit well with the company. And, last but not least, the wealth management arm is not making much headway.

Looking for shareholder value

At CS the strategic direction of the past few years has left many questions open. When it comes to equity capital the bank is not in great shape.
The investment bank is tying up too much capital, carrying out too much business, that produces little or no shareholder value, and in the past six years the wealth management division has grown either much too slowly or by too little.

However, Thiam, Winters and Cryan would be poor strategists if they didn’t also see opportunities in the current situation – whether it is a strike for freedom or a new start.

CS shares need a ‘boost’

This is particularly the case for Thiam. Things have become very quiet around the CS CEO since the publicity and PR offensive this summer. Then it was quite clear where the new boss’s priorities lay: first to examine the strategy and orientation of the investment bank, secondly, to increase efficiency on capital employed, and thirdly, to move the growth focus to Asia where CS has a successful model as a business bank in which staff from private banking and investment banking work hand-in-hand.

Also worth taking into consideration, the ambitious Thiam likes to point out that in his tenure as CEO of British insurer Prudential the share price increased threefold. The situation at CS is rather sobering for the time being. Since Thiam took over the helm at the beginning of July 2015, the share price has fallen by 15 per cent. In other words, what’s needed now is a boost.

To open up new perspectives for “his” bank – and of course to deliver the prospect of value and a dividend to the shareholders – Thiam has at least two possibilities.

First: Credit Suisse takes over Standard Chartered’s private banking arm in Asia

In one move CS could increase its client funds in Asia from 45 billion francs to more than 200 billion, and it would be taking over a business in which the bankers operate in the same way as CS bankers. Under their boss Michael Benz the private banking arm of ‘StanChart’ works very closely with the corporate client business – focusing on the clientele of wealthy business owners. There is a lot of potential here.

Against this background it is not surprising that these options have been talked about for some time in the industry, as previously reported by finews.ch on several occasions. For the time being neither bank has commented on the speculation.

Not that the plan is unrealistic. CS is actually on the lookout for takeover targets in Asia. The bank is not seeking small-change purchases but wants a major move – a quantum leap (article in German), as the CS head of Asian Private Banking, Francesco de Ferrari, has said on the record several times.

That Standard Chartered would sell is also not totally unrealistic. Bill Winters has to increase the bank’s equity capital, while the Asian private banking arm will only reach a ‘critical mass’ with a lot of perseverance.

Second: Credit Suisse takes over Deutsche Bank in Switzerland

This idea is also not as unrealistic as it seems at first glance. “There is a big question mark over Deutsche Bank (Switzerland),” a takeover specialist told finews.ch. In line with the wave of consolidation that is taking place in the Swiss private banking market and the departure of various foreign banks, he suspects the Swiss subsidiary of Deutsche Bank is also a potential target. A Deutsche Bank spokesperson vehemently denied this.

Based on figures alone, such a move would be attractive to CS. Deutsche Bank manages some 90 billion francs in client funds from its Swiss subsidiary, from Eastern Europe, Russia, Latin America, the Gulf region and Asia. Such an acquisition would be one way for CS to strengthen its international private banking and gain more ground in Asia.

Taking over a part of Deutsche Bank would naturally mean cutting down on the duplication of activities, at first. It would cause a wave of redundancies. But the outcome would be a clear gain in efficiency. CS could better use its platform to full capacity, bring the cost-income ratio down and significantly increase the income contribution from wealth management in relation to the investment bank. This is exactly what the bank is striving for now.

The German strategy puzzle

Deutsche Bank’s strategy in Switzerland is vague. Against the backdrop of the local paradigm change in the sector, in recent years the institution has been strict in severing ties with clients depositing untaxed funds. At the same time the bank suffered substantial personnel losses at the client front, as reported by finews.ch.

The German bank has stoically let acquisition opportunities to pass it by. According to the Association of Foreign Banks in Switzerland figures, the profitability of the institution is uneven. After a loss in 2012, Deutsche Bank (Switzerland) made a profit of 159 million francs in 2013. This plummeted to 7.5 million francs in 2014.

Large shareholder in common

If the new Deutsche Bank CEO John Cryan wants to rigorously examine the different business sections for profitability and outlook, as he has announced, the Swiss entity will probably light up red. That would definitely be a reason to shed the business.

A convergence of the two large banks is not that far-fetched, as both institutions have a large shareholder in common. The Qatari ruling family is substantially involved in both banks, as finews.ch reported (article in German) last year. There is even a representative of the dynasty, Jassim Bin Hamad J.J. Al Thani, sitting on the board of CS.

A quantum leap

Together with the president of the CS board Urs Rohner, Tidjane Thiam is due to inform the public about his plans and present the new strategy on October 21st, as finews.ch reported. It remains to be seen whether he will announce a takeover that day. But a quantum leap is to be expected.