Credit Suisse Restructuring May Not Affect CRE

As Credit Suisse’s troubles have deepened and become even more obvious, there has been a natural concern in commercial real estate. However, there still could be an impact on commercial real estate. But an answer to a question that GlobeSt.com posed to the bank would suggest that, at least for now, CRE activity will remain as it was.

Credit Suisse is generally among the larger issuers of commercial mortgage-backed securities (CMBS). Trepp data for 2019 put them in 9th place with a 5.3% market share. Then there would be a question of direct CRE lending.

Earlier in the year, Credit Suisse issued a statement that it looked to raise capital to strengthen its position. Part of the statement was as follows:

“Credit Suisse further intends to reallocate capital to its core, higher-return businesses. The share of RWAs [risk-weighted assets] in Wealth Management, the Swiss Bank and Asset Management, together with Markets, is estimated to increase to almost 80% by 2025, with the intention of growing the revenue share of these businesses to over 85% by 2025. CS First Boston is estimated to account for a further 9% of RWAs and ~14% of the revenue share by 2025.”

Wall Street wasn’t happy. In 2021, Credit Suisse Group had revenue after provision for loan losses of $18.3 billion. After legal settlements and impairments of good will, net income was -$1.65 billion. JPMorgan Chase’s saw revenue of $138.9 billion with $48.3 billion in net income. Citigroup, $75.0 billion in total revenue and net income of $22.0 billion.

Then came the scare stories. “After the value of its riskiest bonds sank and the cost to insure against default rose sharply,” according to the Wall Street Journal, rumors took off with some finance influencers on Twitter claiming the bank was on the “brink of collapse.” Insiders and analysts were wary of a comparison to Lehman Brothers, but panic is an emotion that can run away, putting pressure on a company.

Credit Suisse on Friday unveiled a “new strategy and transformation plan” intended “to create a simpler, more focused and more stable bank built around client needs.” Management would “radically restructure the Investment Bank to significantly reduce Risk Weighted Assets (RWAs).” They’d focus on a markets and investor products franchise and significantly reduce exposure for securitized products.

The only mention of real estate in the statement was in the context of impairments that the company would see as a matter of downsizing.

GlobeSt.com sent questions about what impact the changes would have on CRE lending, existing portfolios of loans, and activity in CMBS, particularly, but not restricted to, the US and North America. The answer from the company’s media relations group was, that “the activities you are inquiring about will continue as usual.”

A brief statement, with no promise about future directions or possibly shifts in focus within the sector, but still indication that there won’t be a sudden upset in CRE business as usual with them.