© Reuters. FILE PHOTO: The logo of the Swiss bank Credit Suisse can be seen in Zurich
By Brenna Hughes Neghaiwi
ZURICH (Reuters) – Credit Suisse (SIX 🙂 expects an impairment loss of around 450 million US dollars for the withdrawal of alternative investment firm York Capital Management from its core business with hedge funds, the Swiss bank said.
The Wall Street Journal reported Monday that the New York-based company had notified employees and investors of plans to leave its original line of business, wind up its European hedge fund business and convert its US hedge fund into a primarily administrative in-house cash fund.
Credit Suisse, which has been an investor in York Capital since 2010, announced Tuesday that it is expected to write down its stake in billionaire hedge fund manager Jamie Dinan's firm in the fourth quarter, which would hit its main capital metric – or Usual equity ratio (CET1) – around 7 basis points.
"The amount of the impairment taken will be assessed as part of our year-end process but is currently expected to be approximately $ 450 million," the bank said.
The impairment would not change the existing guidelines for dividends and capital distributions in 2020 and 2021, said the second largest Swiss bank.
The Swiss bank, which made an initial investment of $ 425 million in York a decade ago, said it intends to maintain its stake in the Asia-Pacific business in York, which is expected to appear over the next year as a new and separate hedge fund is outsourced.
York Capital was founded in 1991 with a focus on U.S. hedge funds and represented approximately 1% of the 438 billion Swiss francs ($ 481.00 billion) managed by Credit Suisse's wealth management business at the end of 2019.
Credit Suisse is reviewing its overall strategy for asset management, which is part of its international wealth management division, after weak returns within the business, which were down 26% year over year through September.
Asset management is splitting off a CHF 3 billion investment company for Swiss energy infrastructure, and CEO Thomas Gottstein has signaled further strategic revisions in the coming year.
Swiss banks have grappled with the need to scale up asset management in order to make the business more profitable in recent years, but heavy write-offs on larger acquisitions have proven costly to several.
"Experience has shown that the selling hedge fund manager almost always benefits from such transactions and very rarely the buyer," said the analysts at Zürcher Kantonalbank in a note. "Even if the extent of the write-down does not shake Credit Suisse to the core, it does show that big banks have to be prepared for major disruptions."
Credit Suisse stocks rose 2.2% to 1025 GMT despite possible depreciation amid a broader ally in the market.
York's new strategy will focus on longer-term assets such as private equity, private debt and secured loan obligations, Credit Suisse said.
($ 1 = 0.9106 Swiss Francs)
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