Credit Suisse: Earning Power Masked by Expensive Debt, Legacy Asset Costs

Taslim Ahmed of Eximus Partners presented his in-depth investment thesis on Credit Suisse Group (Swiss: CSGN) at Wide-Moat Investing Summit 2018.

Thesis summary:

Credit Suisse Group is a financial services company. Segments include Swiss Universal Bank, International Wealth Management, Asia Pacific, Global Markets, Investment Banking and Capital Markets, Strategic Resolution Unit, and Corporate Center.

With a market cap of CHF 39 billion (1 CHF ~ 1 USD), the bank’s income is weighed down by the winddown of legacy assets (pre- and post-2008), with related losses of CHF 1.85 billion in FY2017.

The company is experiencing tailwinds in the form of growth in Asia, with the wealth management division growing profits by 76% in 2016 and 63% in 2017 (most recently at CHF 820 million).

The main value driver is the management team led by CEO Tidjane Thiam, formerly of Prudential Management, who has done an excellent job in both companies, setting concrete targets and in virtually all cases exceeding them.

Taslim sees ~50% upside in the stock as earnings increase after retirement of expensive subordinate debt (~9% interest rate) in October should raise income by CHF 300 million, and reduced losses in the strategic resolution unit increase earnings by CHF 450 million. These “extra earnings” are virtually assured.

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About the instructor:

Taslim Ahmed is the founder and managing partner of Eximus Partners. He is currently a final year undergraduate at Bocconi University, Milan, Italy. He started Eximus Partners in 2013, after a short stint at Sigma Securities (Stock Brokerage) as an intern. He invests in the U.S and Nigerian markets with focus on the latter using an opportunistic approach to investing.