Credit Suisse Group AG is preparing a review of one of its most profitable business areas under new Chief Executive Officer Thomas Gottstein after taking a hit on loans to its richest clients.
Switzerland’s second-largest bank plans to reshape how it lends to billionaire clients, especially loans that are backed by hard-to-sell assets, according to people familiar with the matter. Management is also reviewing its risk appetite for lending to clients with exposure to the oil and gas industry as well as shipping, the people said, asking not to be identified because the discussions aren’t public.
“Credit Suisse follows a sustainable and profitable growth strategy for its International Wealth Management business,” said a spokeswoman for the bank. “To achieve this, we continually review our business model and set up with a long-term view to reflect where we see potential for growth and opportunities to offer unique solutions to clients.”
Gottstein and his head of international wealth management Philip Wehle are taking a close look at the business after the bank took a $1 billion hit across units for bad loans and slumping asset prices in the first quarter. Former wealth head Iqbal Khan had driven an aggressive expansion of loans to rich clients before joining rival UBS Group AG last year amid a spying scandal. Gottstein, who took over three months ago from Tidjane Thiam in the wake of that scandal, has warned that key profit targets and capital levels will be under pressure this year.
Khan has since taken his playbook to UBS, where he’s setting up a new team boost lending to rich clients. Remi Mennesson, who headed the strategic transactions group within the international wealth division at Credit Suisse, will rejoin him there in November, Bloomberg reported this month.
Credit Suisse replaced Mennesson, who was responsible for big ticket financings, in the interim with Jean-Marc Botteri and Abhishek Sudhir, the people said. The bank plans to eventually name one leader for the business and combine the teams that encompass structured transactions as well as real asset lending into one, they said.
Lending to rich clients is a lucrative business for wealth managers, and usually relatively safe because those clients pledge their assets as collateral. But those assets -- stakes in companies, art collections, real estate or other possessions -- can be hard to value, illiquid or exposed to big swings in value.
In its Asia Pacific division, Credit Suisse had to set aside about $100 million for soured loans in the first quarter, primarily related to three cases, the largest of which was Luckin Coffee Inc. The bank is exposed to both corporate banking activity as well as loans to the billionaire owner of the Asian Starbucks rival, Lu Zhengyao.
Much of Lu’s wealth was wiped out when Luckin’s stock slumped following the disclosure that some of its employees may have fabricated billions of yuan in sales. Banks led by Credit Suisse have since targeted the family assets of Lu as they try to recoup losses.
The review of Credit Suisse’s exposure to oil and gas as well as shipping is related to market developments, the people said. Both industries have taken massive hits from the coronavirus lockdown, and Credit Suisse is now taking a hard look at some of its largest exposures, said the people.
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