Credit Suisse’s Global Private Banking Push Supports $27 Stock Value

CS: Credit Suisse logo
Credit Suisse

Credit Suisse (NYSE:CS) is walking the tight-rope to ensure that its goal of cutting costs across all its business units does not end up eating into its top-line numbers in the long run. So even as it scales down operations and trims jobs, the second largest Swiss bank is looking for potential acquisition targets that can complement its private banking business. [1] The aim is clearly to address the criticism it drew from investors over losses it incurred in recent quarters on its cornerstone wealth management & private banking business, even as competitors including larger Swiss rival UBS (NYSE:UBS) reported decent profits.

We maintain a price estimate of $27 for Credit Suisse’s stock, which is about 35% above the current market price – the effect of a major sell-off in European bank shares over recent days due to economic turmoil in Europe – more particularly in Spain and Italy – and the possible impact of this event on the global economy.

See our complete analysis of Credit Suisse here

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Recent Acquisitions Lend Support To The Overseas Expansion Focus…

Credit Suisse has completed the acquisition of two major private banking businesses over the last six months. Early this year, the bank closed the deal with Hedging-Griffo to acquire a majority stake in the Brazilian private banking, asset management and investment banking business. [2] Credit Suisse Hedging-Griffo added assets worth managing over R$ 43.6 billion (US$ 25.8 billion) to Credit Suisse’s portfolio – giving it a strong foothold in the developing nation.

This month, Credit Suisse also completed the acquisition of HSBC’s private banking business in Japan – a deal it announced late last year (see Credit Suisse’s Growth Ambitions Extend to Japan & Vietnam). [3] The acquired business added about $2.7 billion in assets to the bank’s private banking asset pool, and complements Credit Suisse’s current private banking offerings in the Asian country while substantially increasing its client base.

… Although The Bank Is Clearly Not Following The Strategy Blindly

Despite this focus on expanding its private banking business Credit Suisse has not lost sight of the single most important characteristic of a business unit – its long-term profitability. This is what we believe resulted in the bank’s decision to sell its U.K.-based private wealth management unit J O Hambro Investment Management (JOHIM) (see Credit Suisse To Sell London Private Banking Subsidiary In Reorg Efforts).

Credit Suisse is clearly taking steps in the right direction as far as its private banking business is concerned – bulking up its presence where the opportunity exists and cutting down where the business is bleeding cash. How well this reflects on the company’s bottom-line in coming quarters remains to be seen.

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  1. Credit Suisse seeking private banking deals – paper, Reuters, Jun 9 2012 []
  2. Credit Suisse Hedging-Griffo Website []
  3. Credit Suisse Completes Acquisition of HSBC’s Private Banking Business in Japan, Credit Suisse Press Release, Jun 11 2012 []