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Investment Overview for Credit Suisse (NYSE:CS)
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Founded in 1856, Credit Suisse provides companies, institutional clients and high-net-worth private clients worldwide, as well as retail clients in Switzerland with advisory services and financial products. It is the second largest Swiss bank, after UBS.
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Trading equities & derivatives is more valuable for Credit Suisse than trading bonds, currencies and commodities
Credit Suisse's trading assets for bonds, currencies and commodities are comparable to its trading assets for equities & derivatives. However, the bank has chosen to focus on its equities trading business in the years to come. Also, we estimate better yields from equities trading compared to the bond trading business in subsequent periods. This makes the equities & derivatives trading division more valuable for Credit Suisse than bonds, currencies and commodities trading.
Private banking more valuable than asset management
Credit Suisse's total assets under management (AUM) for its private banking division (Wealth Management and Corporate & Institutional Clients) is more than double the AUM for the asset management division. Because of this massive discrepancy the bank's private banking division makes up a larger portion of our price estimate for Credit Suisse's stock.
International wealth management clients more valuable than Swiss clients
The bank's assets under management (AUM) for international clients is nearly 1.5 times that of Swiss clients. This coupled with the bank's focus on growing its international business makes international clients more valuable to its wealth management business.
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Increasing demand for investment banking services in emerging markets
With GDP and per capita income of emerging markets growing rapidly, there is an increasing demand for capital from companies in these markets to support the growing purchasing power of the people. Also with the integration of these markets with the global economy, there is a shifting trend in these countries from family-run businesses to corporations. As a result of these factors, an increasing number of companies in these markets are going public, leading to a growing demand for equity underwriting services. Additionally consolidation across different sectors is driving demand for M&A advisory services.
Volcker Rule to affect proprietary trading
The Volcker Rule restricts banks from making certain kinds of speculative investments if they are not on behalf of their customers. Credit Suisse's proprietary trading desks have accounted for a significant percentage of its earnings in the past. The Volcker Rule is likely to result in a decline in prop trading revenues.
Economic recovery will stimulate the asset management industry
As global economic conditions eventually recover we expect that investors' risk appetites will increase which should drive inflows to asset management firms. This increased risk appetite will likely stimulate investments in multi-asset, alternative and equity products, while signs of a recovery in the real estate market should improve prospects in alternative investments.
Other long-term trends, including the on-going shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies will also positively impact revenues and AUM.
Trefis Forecast Rationale for Assets Under Management
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The total assets managed by the wealth management group for clients outside Switzerland.
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The ${forecast}increased from $525 billion in 2005 to $601 billion in 2007, but decreased to $424 billion in 2008, with fall in returns across asset classes impacting the demand for wealth management services. However, as the economic environment improved, the ${forecast} increased to $504 billion by 2010. Going forward, as the economic environment further improves, we expect it to increase slowly over the Trefis forecast period.
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Supporting Factors:
- Economic Recovery can stimulate investments:
- Due to the global financial crisis investors around the world have having considerable exposure to equity markets have lost significantly. Market appetite to regain prior years’ losses may stimulate investments in multi-asset, alternative and equity products, while signs of broad based recovery in the real estate market should improve prospects in alternative investments.
- Long term trends, including the ongoing shift from state pension dependency to private retirement funding, aging populations in mature markets, and growing wealth in emerging economies, will also positively impact revenues and new invested assets opportunities.
- Continued expansion in Asia Pacific will increase penetration:
- Asia Pacific is becoming the focal point of major investment banks and hedge funds for asset and private wealth management activities.
- Credit Suisse, which has established itself as one of the leading fund managers int his region, can leverage its strong brand image to acquire more clients in this region.
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Alternative investments remain attractive and increase assets:
- Many high net-worth investors are looking at alternative investment vehicles to boost returns in the current uncertain economic environment.
- The alternative investment vehicles of major investment banks and hedge funds have held up well during the recent financial crisis.
- High volatility in the capital markets recently can augur in favor of such professionally managed funds.
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- Heavy Competition can reduce assets:
- Credit Suisse faces intense competition in the wealth management space from other global players such as Deutsche Bank, Barclays Capital, UBS, J P Morgan, Bank of America Merrill Lynch, Citigroup, Goldman Sachs, HSBC Holdings PLC , RBS, Nomura, etc.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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