Credit Suisse may float new CS First Boston investment banking unit

Credit Suisse Group AG may pursue an IPO for its soon-to-be-carved-out CS First Boston unit as the group looks to turn its investment banking business into one that requires less capital and is more connected to other divisions.

The Swiss group's shares fell as much as 15% on Oct. 27 after it announced sweeping restructuring. Shrinking its investment bank was a key element of the restructuring. The capital markets and advisory activities will be moved to a New York-based spinoff called CS First Boston, for which the group hopes to attract third-party capital.

After attracting third-party capital, Credit Suisse intends holding a majority participation in the unit. Depending on how conditions develop, CEO Ulrich Körner said during a presentation of the strategy in London, the bank could reduce its stake into a minority or go for an IPO.

"I think the right way to think about CSFB is to think about a journey," said Körner.

Credit Suisse is already exploring the IPO option, Reuters reported, citing a source familiar with the matter.

'Highly respected investor'

Körner said the group has received a "hard commitment" to inject $500 million into CS First Boston from "a highly respected investor," confirming an earlier report by Bloomberg News. Although he did not name the investor, the CEO said the commitment "shows you that there are enough people out there who think [the business] can be very attractive."

"This isn't the disposal. This is about value creation," the bank's CFO Dixit Joshi said of the CS First Boston carve-out.

Credit Suisse aims to reduce by 40% the risk-weighted assets, or RWAs, and leverage exposure of the investment bank by 2025 versus September-end through the restructuring. It has signed a framework agreement to transfer its securitized products group business to a group led by investment firms Apollo Global Management Inc. and Pacific Investment Management Co. LLC. It will also move non-strategic and low-return businesses into a noncore unit and eventually wind them down.

The creation of a new capital release unit will release $57 billion of RWAs, allowing the bank "to allocate more capital to higher-return businesses in which we are more competitive," Joshi said.

Despite the restructuring's wide range, analysts said it may not be enough.

The changes will take substantially long to implement, Dow Jones Newswires quoted ING analyst Suvi Platerink Kosonen as saying in a note. JPMorgan analysts said that while their initial thinking was that Credit Suisse was "going in the right direction," they were hoping for the investment bank to be scaled down further.

The group's shares have lost more than 54% of their value year-to-date.

Q3 loss

The third quarter marked Credit Suisse's fourth straight quarterly loss amid a string of scandals that led to the strategy reset. The bank posted a net loss of CH4.03 billion in the quarter, against a profit of CHF434 million a year before. The loss included a CHF3.7 billion impairment related to the reassessment of deferred tax assets due to the strategic review.

Assets under management at the bank declined by CHF53 billion in the third quarter, including CHF12.9 billion of net asset outflows, Joshi told analysts. The negative press coverage of the bank in early October triggered outflows, he said.

Analysts have said the earnings would be a "sideshow" as investors focus their attention on the restructuring.