(Bloomberg) -- Credit Suisse shares fell as investors questioned Tidjane Thiam's plan to reorganize the company along geographical lines, place the investment bank at the service of wealth management and hold an initial public offering of the Swiss business.
The multi-year plan coincided with third-quarter results that missed analyst estimates, partly because of a bigger-than- expected drop in managing clients' money, the business the company wants to expand. Credit Suisse will sell 6.05 billion Swiss francs ($6.3 billion) in shares to boost capital and meet regulatory requirements, it said Wednesday.
Thiam, recruited as chief executive officer in July to rebuild investor confidence, is seeking to improve returns that are under pressure from tougher capital demands and record-low interest rates. He's counting on more than doubling profit from the Asia Pacific region by 2018 while he wants the Swiss unit to buy wealth managers that will be coming up for sale, he said. The plan didn't spell out how the company will grow in Asia and Thiam said he would not provide a target for profitability because only a "fool" would commit to something he can't control.
"There's still a lot of uncertainty over this strategy," said Lutz Roehmeyer, who helps manage 11 billion euros ($12.8 billion) at LBB Invest in Berlin. "You can't yet say what the growth is going to look like and where it's really going to come from. I just don't know if wealth management really is the panacea."
JOB CUTS
The shares dropped as much as 5.2% and were 3.2% lower as of 11:45 a.m. in Zurich. The STOXX Europe 600 Banks Index fell 0.3%.
As part of a broad reorganization that includes a management shakeup, Credit Suisse will cut 3.5 billion francs in costs. Thiam, 53, speaking to reporters, said 2,000 jobs will be eliminated in the U.S. and in the U.K. while 1,600 will go in Switzerland. The bank is still hiring 1,000 in private banking, he said.
"We are rebooting the company, we are solving our capital issues," Thiam said in an interview with Bloomberg Television. "One of our objectives coming in was to take capital off the table to raise enough capital so that this would not be again a topic of conversation at quarterly results."
The bank will sell 1.35 billion francs of stock to select shareholders and offer 4.7 billion francs of shares to existing investors in a rights offer as regulators in Switzerland prepare to demand the country's largest banks hold larger capital buffers. The company "assumes" that Switzerland will raise its leverage ratio to 5%, Thiam told reporters.
MANAGEMENT RESHUFFLE
Credit Suisse aims to return to investors 40% of the excess capital expected to reach 23 billion francs to 25 billion francs by 2020. The payout is low and will be seen as disappointing, according Nomura Holdings analysts led by Jon Peace.
The bank will restructure to create three regionally-focused divisions and split the securities unit into a markets business and an investment banking operation. To reflect the new organization, Credit Suisse named Helman Sitohang and Iqbal Khan among six new board members as Gael de Boissard, Hans-Ulrich Meister and Robert Shafir step down.
Credit Suisse said it will begin by shrinking its capital-intensive macro business down to about a quarter of its size by the end of the year while cutting in half the amount of risk-weighted assets at the prime services unit, which caters to hedge funds.
"The market's reaction is, 'Yes, we like what you're doing, but show us the money,"' Andrew Parry, head of equities at Hermes Investment Management, told Bloomberg Television. "They'll have to deliver on that."
Net income in the third quarter decreased 24% to 779 million francs from a year earlier. The average estimate of seven analysts in a Bloomberg survey was for 858 million francs. Net revenue from fixed-income sales and trading plunged 53% to 674 million francs as "extreme dislocations" in credit markets resulted in lower client activity, the bank said.
Private banking and wealth management posted 647 million francs in pretax profit, down 31%, Credit Suisse said. That missed an average estimate of 896 million francs. Clients traded less and trading and commissions fell, the bank said.
"Thiam was brought into the bank as CEO to downsize the investment bank, grow in Asia and better control costs," Dirk Becker, an analyst at Kepler Cheuvreux said in a note. "He is delivering on all these expectations with the strategy announcement, but there is no tangible breakthrough on top of it."
--With assistance from Francine Lacqua in London, Nicholas Comfort in Frankfurt, Giles Broom in Geneva and Jan-Henrik Förster in Zurich.
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