Credit Suisse (NYSE:CS) has reportedly finalized the sale of its exchange-traded fund (ETF) unit to BlackRock (NYSE:BLK) in what is the latest step by the second largest Swiss bank towards streamlining its diversified business operations.  The unit which manages ETFs worth $17.6 billion went on the block last October and was pursued by State Street (NYSE:STT) also.  BlackRock clinched the deal earlier this month – not a surprise considering that the world’s largest asset management firm has been particularly keen on expanding its footprint in Switzerland.  Credit Suisse is the fourth-largest provider of ETFs in Europe, and it looks like the bank has been handsomely compensated by BlackRock for exiting this business.
We are in the process of updating our $25 price estimate for Credit Suisse’s stock in view of the recently announced relaxation to the Basel III capital requirement rules.
Credit Suisse has been undergoing a series of organization-wide changes the last few months in a bid to cut costs and improve operations efficiency due to the notable decline in the bank’s income figures over recent quarters. The most notable was the bank’s decision to reorganize its operations into two roughly equal businesses: the Private Banking & Wealth Management division and the Investment Banking division (see Credit Suisse Announces Simpler Organizational Structure To Focus Business, Cut Costs). And as it goes about merging its private banking, wealth management and asset management businesses in the most cost-effective manner, the bank earmarked certain business units which it no longer wanted to invest in either because of low profitability or considerable capital requirements. The ETF business, with its slim margins, falls in the first category.
Credit Suisse’s ETF business with under $18 billion in assets represents less than 5% of the bank’s asset management business which has more than $400 billion in assets under management (represented in the chart below).
Our analysis of the bank estimates the value of the ETF business at around $160 million – a figure we reach based on the size of the assets, average fee income generated by Credit Suisse’s asset management business and operating margins for the business. Although the terms of BlackRock’s purchase agreement with Credit Suisse remain undisclosed, reports that highlight the former’s intent to acquire the business “at any cost” could mean the Swiss bank could easily have made $200 million on the sale of the business. Notes:
- BlackRock to buy Credit Suisse’s European ETFs – source, Reuters, Jan 10 2013 [↩]
- State Street drops out of bidding for Credit Suisse ETF unit, Fox Business, Dec 18 2012 [↩]
- BlackRock buy bodes ill for others, Financial Times, Jan 13 2013 [↩] [↩]