Credit Suisse/York Capital: hedge dredge
Latest setback won’t derail bank but closing the valuation gap with rival UBS looks tough
In February, when Thomas Gottstein took the command at Credit Suisse after a corporate spying scandal, most expected balance to be restored. In fact, the waves had only started to swell beneath Credit Suisse and all its peers, as the pandemic washed in. This week came the latest lurch, an estimated $450m writedown for its decade-old 30 per cent minority stake in US hedge fund group York Capital Management. While that will no doubt jolt management, it hardly means the Swiss bank will founder.
A letter from York Capital to investors on Monday evening forced Credit Suisse’s hand. The group announced it would move away from managing hedge funds specialising in listed securities to focus on private investments. York’s key funds had lost their way on performance. In October, Credit Suisse’s chief financial officer David Mathers had darkly hinted at restructuring charges to come with the bank’s portfolio of alternative investment managers.
Bought back in 2010 for $425m, Credit Suisse argues that York paid for itself with fees it threw off in the first five years. The impairment accounts for just over half of York’s value on Credit Suisse books. The charge only erases about 7 basis points of its common equity tier one capital, leaving plenty for 2020 dividends.
Still, closing the valuation gap with larger local rival UBS, trading half again above Credit Suisse’s 0.6 times tangible book value, looks tough. Assets under management are half of UBS’s. And other flotsam threaten Credit Suisse. It suffered reputational damage having worked on deals with Wirecard in Germany and Luckin Coffee in China. The bank’s involvement in creating supply chain finance investment funds with SoftBank-backed Greensill Capital are another reason due diligence procedures need explaining. Greensill has struggled to find an auditor ahead of a potential stock market listing.
These will cloud the horizon during the bank’s investor day on December 15. Credit Suisse has more to do to close the gap with its main rival.