Credit Suisse's heads of investment banking and capital markets are leveraging their private banking network and global connectivity to ramp up growth. Kat Van Hoof reports.

Mathew Cestar

Mathew Cestar

Credit Suisse is looking to close the door on a three-year-long restructuring programme, which started in late 2015. The past few years have not been the easiest for the Swiss bank, which faced a multi-billion-dollar fine in the US in 2016 and a SFr4bn ($4bn) equity raise in 2017. Chief executive officer Tidjane Thiam, at the helm since July 2015, has been steering the bank towards growth in emerging markets, investment banking and capital markets (IBCM) and the lucrative private wealth management business, while downsizing its trading desks.

While the turnaround is only just coming to an end, the strategic refocusing is starting to pay off in most areas of the business. Pre-tax income surged by 68% in the first nine months of 2018 compared with the same period in 2017. Return on tangible equity was at 6.3% for 2018 as of September 30, up from 4.1% for the same period in 2017.

However, the encouraging results were marred by an earnings miss in the global markets segment – long a thorn in Mr Thiam’s side, who has admitted that the unit was a year behind where he wanted it to be. Despite the burgeoning comeback in terms of financials, the bank’s share price is down by about 30% in 2018 (as of mid-November).

Career history: Mathew Cestar  

  • 2017 Co-head of investment banking and capital markets EMEA, Credit Suisse
  • 2016 Co-head of global leveraged finance capital markets, Credit Suisse      
  • 2015 Co-head of global credit products EMEA, Credit Suisse                 
  • 2008 Head of leveraged finance capital markets EMEA, Credit Suisse           
  • 2005 Head of high-yield capital markets EMEA, Credit Suisse  

Focus on growth

One of the bright spots in the bank’s third quarter earnings report was the IBCM unit, headed in Europe, the Middle East and Africa (EMEA) by Credit Suisse veterans Mathew Cestar and Jens Welter, who took the reins a year ago. Net revenues are up 16% compared with the third quarter of 2017 and 8% year-on-year, and IBCM remains on track to hit the targets laid out in the 2015 restructuring plan.

The story for the unit has not been so much restructuring as repositioning the business for growth. “An important step has been to create two areas of excellence, one for equity and one for debt, integrating all of the cash-based and derivatives products,” says Mr Cestar. This holistic approach allows the bank to offer clients broad-based solutions, while also making sure the coverage bankers know exactly where to go within the bank.

“In the final stages of the bank-wide restructuring, IBCM has outperformed versus the street so far this year,” says Mr Welter, citing Dealogic data. Credit Suisse ranks in fifth spot for share of wallet in EMEA as at the third quarter of 2018, having jumped three places since the end of 2017.

IBCM posted attractive returns in the first nine months of the year. This is in large part due to playing to Credit Suisse’s strengths through connectivity with the rest of the firm for global cross-border transactions into Asia and the US, but also with the private banking business, according to Mr Welter.

Picking and choosing

IBCM has been more selective about which deals it takes on and so far this strategy is paying off. Its revenue performance is up 20% year on year for advisory and up 10% for equity underwriting, though debt underwriting, including leveraged finance and debt capital markets, is down 3%. As a result, adjusted return on regulatory capital was up to 14% as of September 2018. In September 2015 this figure stood at 12%.

Mr Welter says: “A major theme for us has been investing heavily in big markets, big products and big deals.” Credit Suisse has advised on some of the largest transformational cross-border deals to have closed in 2018, including German chemicals company Bayer’s acquisition of US-based Monsanto and Linde’s take-over of Praxair, among others.

Jens Welter

Jens Welter

“For the sponsor business, the focus has shifted to the most profitable parts of the market. Credit Suisse has taken part in some of the biggest single-fee events in this segment,” says Mr Welter. Examples include KKR buying Unilever’s spreads business, PAI taking Refresco private again, Vantiv buying up Worldpay, and Silver Lake purchasing Zoopla.  

Credit Suisse was also on five of the top 10 merger and acquisition (M&A) deals in 2018 by fees in the UK, which has the largest fee pool in Europe. “Being involved in deals such as Zoopla and Worldpay is what has really been moving the needle in terms of revenues,” says Mr Welter.

With regards to equity capital markets, 2018 has continued 2017’s trend of booming initial public offering (IPO) activity, especially in Germany and Switzerland. Unlike 2017, the market has been much more volatile, however, with a slew of deals either not making it to the finish line or stumbling in the aftermarket. Here, too, Credit Suisse has been selective.

“An interesting deal we did recently was the SIG Combibloc IPO, which was about SFr1.7bn in size. Despite the volatility and poor performance of other recent deals, the IPO went off very well and held up in aftermarket trading,” says Mr Cestar.

The selectivity on where the IBCM spends its time, shifting away from more junior positions towards more global coordinator-type roles, is a key driver for its financial performance. “Activity is being maximised across geographies and products as clients are seeking advice for complex situations, such as cross-border M&A or cross-border financing,” says Mr Cestar. This tends to be a higher margin business, he notes.

This strategy has gone hand in hand with a greater focus on core markets such as the UK, Germany, France, Italy, Spain and, naturally, Switzerland. Some of these markets are facing upheaval, through Brexit in the UK and a change of the guard in Germany after 13 years of chancellor Angela Merkel. “We think we have the right strategy to face bumps in the market by focusing on core European markets and shifting away from smaller markets, which tend to underperform quite sharply in case of a downturn,” says Mr Cestar.

A team ethos

Collaboration and connectivity are important themes at the IBCM unit under Mr Cestar and Mr Welter’s leadership, and go well beyond the unit itself. “We’re increasingly collaborative with other parts of the [Credit Suisse] business at IBCM,” says Mr Cestar, who encourages co-covering of key clients, where senior bankers within IBCM work closely with counterparts in private banking. “Our private banking clients are of such a size and scale that they require real institutional-style coverage on M&A or capital markets advice,” he adds.

Career history: Jens Welter  

  • 2017 Co-head of investment banking and capital markets EMEA and co-global head of consumer and retail investment banking, Credit Suisse
  • 2011 Co-head of European consumer and retail, real estate and healthcare, Credit Suisse
  • 2007 Co-head of European diversified industries group, Credit Suisse

There are several ways in which Credit Suisse has successfully leveraged its private banking network in order to add as much value as possible for these clients in an M&A or a capital markets transaction, according to Mr Welter. “In that context, Credit Suisse, for example, advised Ferrero, the family-owned Italian confectionery company, on its acquisition of Nestlé’s US confectionery business,” he says.

While many other banks also have a significant book of private wealth clients, leveraging this type of synergy is easier said than done. “Actually being able to do something like we did with Ferrero, combining private banking with a corporate selling a unit, is quite unique to Credit Suisse,” says Mr Welter.

Moreover, it is important for ultra-high-net-worth individuals to work with a top-tier investment bank for this type of transaction. “Credit Suisse combines servicing these clients with doing large-cap, blue-chip deals, validating the level of service we provide,” adds Mr Cestar.

Firming up the ranks

Although Mr Cestar and Mr Welter started their positions as co-heads of IBCM only about a year ago, both have spent most of their careers with Credit Suisse and wasted no time implementing their ideas on collaboration and cross-pollination. As Mr Welter puts it: “We came in with a vision and moved very quickly with re-energising some of the leadership in the investment banking division.”

Credit Suisse has been able to attract first-rate talent from top-tier competitors, according to Mr Cestar. James Palmer, vice-chairman of EMEA IBCM, was hired from Swiss competitor UBS. His responsibilities will include senior coverage of many of the most important strategic clients in the UK.

Selective hiring has been used to bring in expertise where it is not homegrown. For instance, the new head for debt capital markets business, Khalid Krim, who has expertise on financial institutions group (FIG) structuring, returned from a stint at Morgan Stanley. “Activity between FIG capital raising and derivatives solutions advice is something that will likely be interesting next year and beyond,” says Mr Cestar.

Mr Welter chimes in: “Fintech and tech-enabled services will become more important in the future and Credit Suisse wants to be ahead of the ball.” In this spirit, fintech specialist Max Mesny joined as co-head of the EMEA FIG team, also from Morgan Stanley.

While the IBCM’s recent results are encouraging, Mr Cestar remains sanguine, saying that the market started to turn a few quarters before the start of their tenure. The next big focus will be on sustainability, of both revenues and the client base, he says. 

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