Credit Suisse: Why Ulrich Körner can't afford to make a mistake

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Restructuring experience:

helped implement a radical restructuring plan at UBS.

Now he is in charge at Credit Suisse.

Photo: Credit Suisse / REUTERS

They sell, they outsource, they close down, they shrink - what Credit Suisse boss

(60) and chairman

(63) presented on Thursday to end the crisis at the Swiss bank has all the elements that needs a radical recovery plan.

It's no patchwork, a little remodeling here, a little reforming there, and a big dose of euphonious words on top.

What Körner and Lehmann are planning will hurt.

It's going to be expensive, very expensive.

And yet it might be too little, too risky in the end, and too late to really fix Credit Suisse and let it shine in the glory that some in the C-suite wish for.

UBS in particular provided the blueprint for the conversion.

A decade and a half ago, Körner was one of the most important men behind the then boss

(78).

Körner made sure that Grübel's rigorous restructuring plan was implemented.

The core elements back then: massively trimming down the capital-intensive investment banking business and expanding asset management.

This is also Körner's goal at Credit Suisse.

He also took over other elements of his rescue plan from Deutsche Bank boss

(52) and some of his managers.

This is how

is supposed to handle the legacy of Credit Suisse.

The quite controversial investment banker managed Deutsche Bank's Bad Bad until 2021.

Significant dilution of shares

Even Sewing was late with the fundamental restructuring of Deutsche Bank.

Körner is coming much later now - after months of uncertainty about the future of Credit Suisse.

During that time, customers turned away, competitors had an easy time poaching employees, and the share price plummeted – partly because smooth communication is not one of Körner's strengths.

All of this means that Credit Suisse cannot avoid a capital increase of four billion dollars (four billion euros) - and that with an extremely low market capitalization of just over $10 billion.

Shareholders can therefore not avoid a dilution of their shares by up to 30 percent, as Citigroup estimates.

But the prospects for the future are even more painful: Credit Suisse is expected to achieve a return on equity of just 6 percent at the end of the general overhaul.

This is too little.

The bank then still destroys capital.

A return of about 10 percent would be needed to cover the cost of capital.

Clumsy calculation

Perhaps Körner deliberately sets the bar low in order to end up with a positive surprise.

Should that be his calculation, it would be more than clumsy.

Because with such a perspective, how do you want to rally shareholders behind you, win supporters for a daring plan in which a lot can still go wrong?

No wonder the share price collapsed by more than 15 percent on Thursday.

A few more sales should be relatively uncomplicated.

For example, Credit Suisse wants to sell its stake in the Six Group, which operates the Zurich Stock Exchange, and a luxury hotel.

But that's where the easy part ends.

Winding up unloved assets, downsizing the investment banking business and forging a profitable, meaningful unit from what is left that doesn't tie up too much capital - that's going to be a fine art, and Körner can't afford to make any mistakes.

This is made more difficult by the fact that he also has to change the mentality of the troupe and shake off the fatal culture of excessive risk-taking and personal profit maximization.

At UBS, Körner has seen how radical restructuring can be achieved.

He now has to show what he learned there.

His job at Credit Suisse is even more difficult - with a looming recession - so there is much less room for error.

Körner cannot afford to fire the last Credit Suisse cartridge.