- Swiss lender slows tempo in China amid clampdown, zero Covid
- Challenges mount for China expansion plans of global banks
By Cathy Chan June 9, 2022
Credit Suisse Group AG is tapping the brakes on its China expansion, postponing its biggest mainland project, in a sign that weakness in Asia’s largest economy is prompting global banks to temper ambitious growth plans.
The Zurich-based lender has delayed the targeted launch of its locally incorporated bank by a year to 2024, the second postponement since the project was conceived two years ago, according to people familiar with the matter. A local bank would allow Credit Suisse to build a branch network to fuel its wealth management business, the people said, asking not be named discussing internal deliberations. The plans may be subject to change.
The project has been delayed by a sluggish industrywide licensing process on the mainland and, more recently, questions from some senior Credit Suisse executives in Zurich on the need to pour resources into the project at a time when Covid lockdowns and an unprecedented crackdown on private enterprise are slowing the economy and hurting deal-making, one of the people said. The scandal-hit bank is keeping a tighter rein on investments and a recent global reorganization has taken autonomy away from Asia.
Credit Suisse on Wednesday warned it would post a loss in the second quarter and that it would speed up cost cuts amid challenging markets, weak customer flows and client deleveraging, citing the Asia-Pacific region specifically. The bank is weighing job cuts across regions and divisions such as investment banking and wealth management, people familiar have said.
Credit Suisse shares have slumped 21% this year in Zurich. The bank’s US-listed stock slipped 1% on Wednesday even after a blog report that State Street Corp. could make a bid for the company.
The delay for the local bank project comes at a time when Credit Suisse is also slowing hiring on the mainland, becoming one of the first global banks to rein in its tempo after a rush to take advantage of China’s 2020 opening of its $57 trillion financial industry. The firm in 2020 gained control over its securities venture in the country, and has plans to take full ownership. It last year said it planned to triple its headcount in China over the next few years.
“Credit Suisse is committed to China as a strategic market in our overall regional APAC footprint, and there is a clear mandate to remain on track with the continued build-out of our onshore franchise across Wealth Management, Investment Banking and Asset Management, as the Chinese regulatory and market opportunities allow,” a bank spokeswoman said. “As part of our strategy, we continue to invest in our China footprint including our immediate focus of taking full ownership of our securities joint venture, as we have stated previously.”
The firm added more than 200 employees in China last year but will slow the pace of hiring this year partly due to the license delay, a person familiar with the matter said. New hires by global banks on the mainland are typically given one-year contracts and one option for Credit Suisse is to refrain from renewing the contracts, which could lead to a reduction of a few dozen of jobs over the next 12 months, the person said. The reductions would be mostly in mid-to-back end support and information-technology functions.
Credit Suisse’s ability to expand its existing venture has been hampered by the opaque regulatory framework in China. The securities regulator has yet to make an on-site inspection of the firm after it gained control over its securities venture in 2020. That’s the final step needed before it’s allowed to start building out its wealth management business and expand securities services beyond Shenzhen into other cities, the people said.
Meanwhile, the Swiss firm is grappling with a string of scandals that led to billions of dollars of losses and a global restructuring. A massive capital commitment to China has become a harder sell as shoring up the confidence of shareholders has become the firm’s main priority, the people said.
Until a year ago, China’s financial markets were the big lure for the world’s biggest banks, with billions of potential profits on the line in investment banking and wealth management. Wall Street firms and their European rivals ramped up their presence in the country with ambitious hiring plans and investments to take full ownership of onshore ventures despite elevated US-China tensions and an increasingly opaque regulatory environment.
Goldman Sachs Group Inc. has said it plans to double its workforce in mainland China, while JPMorgan Chase & Co. has pledged a large expansion.
The push is now being hurt by slowing business activity amid pandemic lockdowns that has limited the ability of bankers to travel to meet clients and strike deals. China’s growth target this year of about 5.5% is looking to be increasingly out of reach. Premier Li Keqiang said last month the nation will pay a huge price with a long road to recovery if the economy can’t keep expanding at a certain rate.
Credit Suisse has already seen some key departures in mainland China. In April, the chief executive officer of its securities venture, Tim Tu, quit to become co-head of Asia-Pacific financing group in Hong Kong. The firm recently moved Kelly Jin and Wu Di to Hong Kong from its mainland China securities operations, while Michael Chang, who headed wealth management markets solutions at Credit Suisse Securities in China, departed in May.
Other banks have also seen shakeups among its personnel. UBS Group AG’s country head in China, David Chin, recently stepped aside to focus on leading the Asia-Pacific business. The chief executive officer of JPMorgan’s China securities unit, Houston Huang, also recently stepped down.
JPMorgan’s Asia-Pacific CEO, Filippo Gori, last month downplayed the growing risks, saying the bank was in China for the long-haul and had no doubts about its expansion.
Cutting jobs at this time would be a sensitive issue for big banks seeking to gain a foothold in China. Officials have repeatedly stressed the importance of stabilizing employment, even introducing measures to subsidize companies to retain workers in an effort keep unemployment below its target.