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Credit Suisse to tighten the reins after string of scandals

By Oliver Hirt, Pamela Barbaglia and John O’Donnell

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Credit Suisse to tighten the reins after string of scandals
© Reuters. FILE PHOTO: The logo of Swiss bank Credit Suisse is seen at its headquarters at the Paradeplatz square in Zurich, Switzerland October 1, 2019. REUTERS/Arnd Wiegmann

By Oliver Hirt, Pamela Barbaglia and John O’Donnell

ZURICH/FRANKFURT (Reuters) – Credit Suisse (SIX:) will unveil a new centralised structure on Thursday in an attempt to bring its far-flung divisions to heel and draw a line under a string of scandals that have cost the Swiss bank billions of dollars, two sources said.

Over the past year, Credit Suisse has been fined for arranging a fraudulent loan to Mozambique, tarnished by its involvement with defunct financier Greensill, racked up $5.5 billion in losses when U.S. family office Archegos collapsed, and been rebuked by regulators for spying on executives.

Credit Suisse drafted in seasoned banker Antonio Horta-Osorio as chairman in April to stop the rot and he will lay out his charter to reform Switzerland’s second-biggest bank on Thursday when it presents third-quarter results.

One key change is expected to be the creation of a single wealth management division that caters to a global elite, centralising oversight at the bank’s headquarters in Zurich, two people familiar with the matter told Reuters.

Under the current structure put in place six years ago, wealth management straddles three divisions: a Swiss business, an Asia-Pacific arm catering mainly to rich Chinese and an international arm based out of Switzerland.

Merging the wealth division would make Credit Suisse simpler and potentially pave the way for cost cuts.

It would also rein in local bankers who have enjoyed much autonomy, making them more answerable to senior managers who have often been blindsided by the risks that triggered past scandals, the sources said.

One of the people told Reuters that managers at the bank’s headquarters had become very risk averse and they did not want to give leeway to local bankers, regardless of how much profit they were making.

A spokesman for Credit Suisse declined to comment.

SHARES SUFFER

Credit Suisse’s financial humiliation stands in stark contrast to its cross-town rival UBS.

In the wake of massive losses and a bailout during the financial crisis, UBS successfully pivoted away from investment banking to wealth management and is now the world’s largest wealth manager with $3.2 trillion in invested assets.

Its shares have climbed 57% in the past 10 years while Credit Suisse has slumped 53% over the same period.

Shareholders have deserted Credit Suisse this year following the slew of bad headlines. Its shares are down 12% while UBS is up 36% while Wall Street rivals are riding high on the back of a boom in equity trading and M&A.

Andreas Venditti, an analyst at Swiss private bank Vontobel, said it would take more than “minor changes and a new divisional set-up” at Credit Suisse to reverse the trend.

The expected revamp at Credit Suisse has also encouraged some high-profile dealmakers to approach the bank’s senior management to suggest it merges with a rival, another person with knowledge of the matter said.

Those ideas have been rejected so far, however, the person said.

Nonetheless, the prospect of a challenge by investors demanding the break-up of the bank, or that its shrinking market value makes it a target for a hostile foreign takeover, have long troubled managers, sources told Reuters earlier this year.

‘WARNING SIGNALS’

With a market value of $28 billion, Credit Suisse is worth less than half of UBS and a fraction of Wall Street giants such as JPMorgan (NYSE:) weighing in at half a trillion dollars.

But an approach from the United States would not go down well in Switzerland. Relations between Swiss banks and Washington were damaged when the United States pressured them into giving up their strict secrecy code more than a decade ago.

A combination of Credit Suisse and UBS, which has been touted as an alternative alliance, would face its own problems. For one, it would dominate the Swiss market.

Another source said that while Credit Suisse had examined a sale or spin-off of its asset management business, that had been shelved. The person said, however, that once further efforts were made to cut costs and boost growth, a sale, or listing of the business on the market, could be back on the cards.

The bank’s drive to centralise its operations is drawing on lessons from some of its recent failures, including Archegos.

Earlier this year, Credit Suisse published a report blaming a focus on maximizing short-term profits and enabling “voracious risk-taking” by Archegos for failing to steer the bank away from catastrophe.

Despite long-running discussions about Archegos – by far the bank’s largest hedge fund client – Credit Suisse’s top management were apparently unaware of the risks it was taking.

The bank’s chief risk officer and the head of its investment bank recall hearing about it first only on the eve of the fund’s collapse.

“There were numerous warning signals,” the report said. “Yet the business … failed to heed these signs.”

($1 = 0.9127 Swiss francs)

Stock Markets

Stats had a positive effect on the European stock market. European growth stocks

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european growth stocks

West European stock indexes closed Wednesday’s trading with a confident growth. Traders evaluated the fresh batch of statistics and bought European growth stocks.

What influenced European stocks to high growth?

GDP volume in France rose 0.2% in the third quarter compared to the previous three months, final data from the national statistics institute Insee showed. The final data coincided with a preliminary estimate. Analysts, on average, had not expected a revision, according to a Trading Economics survey. GDP growth slowed from a 0.5% rebound in the second quarter.

Consumer prices in France, harmonized with European Union standards, rose 7.1% year-over-year in November. Insee also reported. The November rate of increase in consumer prices coincided with that of October, and analysts polled by Trading Economics expected inflation to remain at the same level.

Consumer spending in the country collapsed by 2.8% in October compared with the previous month. Analysts polled by Bloomberg expected a more moderate decline of 1 percent. The consensus forecast of experts polled by Trading Economics envisioned a 0.6% decline. The decrease in consumer spending was the maximum since April 2021.

The number of unemployed in Germany increased by 17 thousand in November, according to the Federal Employment Agency of Germany. The rise in the index was marked at the end of the sixth month in a row. Experts interviewed by Bloomberg agency, on average, predicted an increase of 13.5 thousand. Respondents to Trading Economics expected an increase of 13 thousand.

Additional positives for investors in European markets on Wednesday were messages about easing of coronavirus restrictions in a lot of cities in China. Note that Amazon’s stock price is also rising if you are interested in the U.S. stock market.

Earlier, we reported that U.S. stock indices were up 2.2-4.4%.

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Stock Markets

U.S. stock indices today rose 2.2-4.4%

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U.S. stock indices today

The U.S. stock indices today closed the trading on Wednesday with the confident growth due to the statements of the Federal Reserve Chairman, Jerome Powell, who confirmed that the U.S. Central Bank could slow down the basic rate rise as early as in December.

Judging by the quotations of futures on the level of the prime rate, U.S. stock market indices expect the Federal Reserve to raise it by 50 basis points (bps) in December – to 4.25-4.5%. The U.S. Central Bank has increased the rate by 75 bps at each of the previous four meetings. Against this background, the current stock price of Facebook also rose.

The report by the industry organization ADP, published on Wednesday, showed a slowdown in job growth in the U.S. private sector. Their number increased by 127,000 in November, the lowest rate since January, said the ADP. Analysts polled by The Wall Street Journal on average had forecast job growth of 190,000 after a jump of 239,000 in October.

Data from the U.S. Commerce Department, also released Nov. 30, showed higher-than-reported growth in the U.S. economy in the third quarter. U.S. GDP grew at an annualized rate of 2.9% in the July-September quarter, rather than the previously reported 2.6%. Experts polled by Trading Economics had expected an average revision of 2.7%.

Also, the Federal Reserve released its regional Beige Book survey Wednesday, showing that economic activity in the United States was little changed in the fall.

Federal Reserve banks in five counties reported a weak increase in activity in October and November, while the other seven reported a stable or slightly declining economy.

  • The Dow Jones Industrial Average index was up 737.24 points (2.18%) at 34589.77 as of Wednesday’s market close.

  • Standard & Poor’s 500 rose 122.48 points (3.09%) to 4,080.11 points.

  • The Nasdaq Composite added 484.22 points (4.41%) to 1,468.

All three U.S. stock market indices closed November, with the Dow Jones gaining 5.3%; the S&P 500 gaining 4.6%, and the Nasdaq Composite gaining 3.3%.

Earlier we reported that Main European stock indices were rising during trading.

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Stock Markets

Main European stock indices rise in trading

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best european stock indices

Main European stock indices are rising during trading on Thursday. The Stoxx Europe 600 composite index of the largest companies in the region rose 0.58% to 442.60 points. German DAX is up 0.34%, British FTSE 100 is up 0.15%, French CAC 40 is up 0.01%, Italian FTSE MIB is up 0.47% and Spanish IBEX 35 is up 0.45%.

What affected the best European stock indices?

During a speech at the Brookings Institution on Wednesday, Powell reiterated that the Fed could slow the rise in the prime rate as early as December. “The time to moderate the pace of rate hikes may come as early as the next meeting,” Powell said. 

The Fed chair, meanwhile, tried to balance those words with “hawkish” signals. Market Watch notes. He said that the U.S. Central Bank will have to raise the rate higher than could be expected a few months ago. Moreover, Powell made it clear that the issue of rate cuts is irrelevant at the moment. By the way, his words influenced the growth of the current stock price of the NASDAQ-100

Another Fed official, Board of Governors member Lisa Cook said she believes the regulator needs to keep raising rates as inflation is still too high. “We’ve started to get more favorable inflation data. But I would be cautious about drawing big conclusions on just one month’s worth of data,” Cook said during a speech at the Detroit Economic Club.

Earlier, we reported on how European stock indexes were falling following Asian stock markets.

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