Credit Suisse Targeted for Breakup by Little Hedge Fund With Big Plans

By Brian Blackstone and Laurence Fletcher Features Dow Jones Newswires

A small but top-performing activist hedge fund has set its sights on an ambitious target: breaking up Swiss banking behemoth Credit Suisse Group AG.

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RBR Capital Advisors AG, which is based close to Lake Zurich and headed by outspoken trader Rudolf Bohli, said Tuesday it wanted the bank to split into an investment bank, a wealth manager and an asset manager.

The fund will release further details of its plan this week. It owns about 75 million francs ($77 million) in CS stock, or about a 0.2% stake, according to a person close to the bank.

"It's going to be better off being a pure player," William Raynar, a board member at RBR, told The Wall Street Journal. It has become "extremely difficult" for the investment bank to be competitive.

He added that RBR has had "a number of interactions" with other investors. Activists typically encourage other shareholders to support their campaigns, to add heft to their calls for change.

Engineering the type of sweeping changes outlined by RBR is likely to prove difficult. Credit Suisse's units are interconnected. Each brings business to the other and the bank's broadly diversified shareholder base may make it difficult to generate momentum for changes.

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"Every few years this idea comes around," said Andreas Venditti, senior bank analyst at Vontobel, who examined two years ago whether it made sense to split up Credit Suisse and separate its investment banking unit.

"I came to the conclusion it is not viable," he said. Spinning off investment banking "just isn't going to work, you have funding and capital issues and these units work together with the investment bank bringing money to the private bank" and the private bank bringing flows to the investment bank, Mr. Venditti said.

CS shares rose as much as 2% early Tuesday before paring some gains.

"While we welcome the views of all our shareholders, our focus is on the implementation of our strategy and of our three-year plan, which is well on track and which we believe will unlock considerable value for our clients and shareholders," a Credit Suisse spokesman said.

Before the credit crisis, activist hedge funds could often effect major change at companies--notably, TCI helped trigger the sale of Dutch bank ABN Amro. However, many funds saw their influence decline during the crisis as investors pulled assets and nowadays activists tend to need a much bigger stake in a company to bring about change.

U.S. activists have been drawn to opportunities in Europe in recent years, including billionaire activist investor Daniel Loeb's Third Point LLC's announcement in June that it had taken a $3.5 billion stake in Nestlé SA. European activists have been gaining influence in recent years, although they tend to be fewer in number and often smaller than their U.S. counterparts.

RBR has had success in an activist campaign at airline catering firm Gategroup Holding AG between late 2014 and 2016, during which time the firm's shares rose sharply. However, it failed with plans this year to shake up the board of Swiss money manager GAM Holding.

News of RBR's Credit Suisse campaign was first reported by the Financial Times.

Credit Suisse is two years into an overhaul under chief executive Tidjane Thiam, who took the reins in 2015, as the Swiss banking giant reorients away from profitable, but volatile, investment banking toward the more stable business of managing money for well-heeled clients.

This process has been rocky and exposed internal divisions. The low point came one year into Mr. Thiam's tenure in July 2016, when Credit Suisse shares dipped below 10 francs a share. The stock has recovered to nearly 16 francs a share, well below the level around 25 francs when Mr. Thiam took the helm.

Credit Suisse lost 2.4 billion francs last year, mostly due to a legal settlement with the U.S. over crisis-era mortgage-backed securities. Still, its financial position was strong enough in the spring for the bank to shelve plans to sell a chunk of its profitable Swiss unit and raise capital by listing additional shares instead.

RBR is the latest activist investor to target a well-known Swiss company. U.S. investors David Winter, David Millstone and Keith Meister have accumulated over 15% of Swiss chemicals company Clariant AG through their vehicle White Tale Holdings and have threatened to vote against Clariant's proposed merger with Huntsman Corp., saying the deal is detrimental to investors.

After Third Point LLC took its stake in Nestlé it began pressing for changes, including the sale of non-core assets such as Nestlé's stake in L'Oréal. Days later, Nestlé announced a 20 billion Swiss franc share buyback program and said it would orient its capital spending toward high-growth parts of its business, including pet care, infant nutrition, coffee and bottled water.

Write to Brian Blackstone at brian.blackstone@wsj.com and Laurence Fletcher at laurence.fletcher@wsj.com

(END) Dow Jones Newswires

October 17, 2017 08:18 ET (12:18 GMT)