December 1, 2023

Investment Banking

Let Your Investment Banking Do The Walking

Why Harris Associates sold its entire Credit Suisse stake

Once Credit Suisse’s largest shareholder, Harris Associates no longer holds any stock in the Swiss bank, which warned of losses for this year and witnessed unprecedented client exodus.

The Chicago-based activist investor started cutting its exposure in October, Harris deputy chairman David Herro told the Financial Times, after Credit Suisse raised 4 billion Swiss francs ($4.3 billion) in a founding round in which Saudi National Bank took a 9.9% stake of the Switzerland’s second-largest bank.

“There is a question about the future of the franchise,” Herro said. “There have been large outflows from wealth management.”

Last month, Credit Suisse reported its worst annual loss since the 2008 global financial crisis, and warned of “substantial” loss in 2023. The bank began a massive revamp, including job cuts and the creation of a separate “super boutique” investment bank under the CS First Boston brand.

Credit Suisse’s faltering finances, by the digits

10.1%: Harris’ stake in Credit Suisse last August

5%: Harris’ stake in Credit Suisse in January this year

110.5 billion francs ($120 billion): Volume of Credit Suisse client withdrawals in the last quarter of 2022, which was unprecedented

7.3 billion Swiss francs ($7.9 billion): Credit Suisse’s annual losses for all of 2022 versus 8.2 billion Swiss francs ($8.9 billion) back in 2008.

50%: Decline in the bonus pool for the whole bank. The executive board will receive no bonuses at all for last year

$175 million: Credit Suisse’s Feb. 9 acquisition of The Klein Group, the investment banking business of M. Klein & Company LLC. It’s a bid to “progress the carveout of CS First Boston as a distinct, leading independent capital markets and competitive advisory led business,” the company said in a statement.

Quotable: Harris Associates is seeking better investments than Credit Suisse

“We have lots of other options to invest. Rising interest rates mean lots of European financials are headed in the other direction. Why go for something that is burning capital when the rest of the sector is now generating it?” —Harris Associates’ David Herro, speaking to the Financial Times in March 2023

A brief recent history of Credit Suisse scandals

Mar. 2021: British financial services company Greensill Capital, which focused on supply chain and accounts receivable financing, failed, causing Credit Suisse’s clients to lose as much as $3 billion on their investments.

Apr. 2021: Credit Suisse takes a $4.7 billion hit in the meltdown of US hedge fund Archegos Capital. Credit Suisse, which provided brokerage services to Archegos Capital, including lending, fired at least seven executives in the aftermath.

Feb. 2022: Credit Suisse is accused of failing to prevent a Bulgarian crime ring from laundering money related to cocaine trafficking. A Swiss court finds the company guilty in June, and orders it to pay $22 million in the country’s first criminal trial of one of its major banks.

Also in Feb. 2022: Details of more than 18,000 Credit Suisse customer accounts holding more than 100 billion Swiss francs in accounts were leaked to German newspaper Süddeutsche Zeitung, revealing accountholders dubious identities—people involved in human trafficking, drug trafficking and torture, among other illicit activities. Earlier this month, Swiss authorities opened proceedings to investigate the source of the leak.

Mar. 2022: US lawmakers start investigating Credit Suisse over compliance with sanctions against Russian oligarchs following Russia’s invasion of Ukraine.

Bank of interest: Saudi National Bank (SNB)

Last year, Saudi National Bank (SNB), majority-owned by the kingdom’s Public Investment Fund and its largest lender, bought a 9.9% stake in Credit Suisse, making it the bank’s largest shareholder. The Middle Eastern stronghold is growing—before SNB, Olayan Group (4,9%) and Qatar Investment Authority (5%) had stakes— to claim almost a quarter of the business, tipping the balance of power so the investments go beyond just cutting cheques. In the meantime, Credit Suisse will likely get more involved in Saudi Arabia and broader regional markets

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