The occasionally activist fund recently accumulated a stake of between 0.2% and 0.3% and has put together a presentation it will release on Friday seeking to divide up the large institution into three parts, according to sources and a Financial Times report Tuesday, Oct. 17.
Activist advisers and analysts often argue that large mega-banks, particularly those that aren't performing well lately for shareholders, could be good targets for insurgencies because they fit within the typical activist "conglomerate discount" thesis. In other words, the assertion is that their various parts are far more valuable than their overall stock-market valuation.
But in most cases, activists don't launch activist campaigns at big banks, for a variety of reasons. And the few that have didn't succeed in breaking up their target institutions. To get a sense of how the Credit Suisse campaign might play out, TheStreet's sister publication The Deal spoke with David Trenchard, who was vice-chairman at London-based activist fund Knight Vinke Asset Management in 2013 when it sought unsuccessfully to drive UBS AG (UBS) - Get Report to spin off its investment bank.
Trenchard, now an independent consultant working with activist and advisory firms, argues that although the RBR Capital thesis has merit, it may have difficulty convincing Credit Suisse investors to support a breakup proposal.
"I think the likelihood is that shareholders will conclude that breaking up Credit Suisse would be an incredibly complex thing to do," Trenchard said. "There are many linkages among various businesses that would be difficult to separate."
Trenchard noted that Credit Suisse would likely struggle with what to do with its huge derivatives exposure, which would need to be allocated with one of the separated businesses. The RBR Capital proposal would divide Credit Suisse into three companies, an investment bank restoring the First Boston name (CS acquired First Boston in 1990), an asset management group and a third company that would hold its retail and business banking operation.
"If you put the derivatives in the First Boston investment bank then it becomes a highly leveraged firm," Trenchard noted. "If you put it in the commercial bank then that may be perceived as a little less risky, because it becomes part of a much larger asset-based business."
Another problem for RBR Capital is its minuscule stake in Credit Suisse. Trenchard said he expects some investors will argue that the Swiss investor doesn't have enough skin-in-the-game. "If people believe in the argument, then the size of the stake shouldn't matter," Trenchard said. "However, some investors take the view that if you don't have a big position you shouldn't be making demands."
Already, the Financial Times quotes David Herro, of Harris Asset Management, a 9% Credit Suisse holder, who says that RBR Captial has "very little skin in the game," adding that Credit Suisse CEO Tidjane Thiam plan is "starting to pay off."
An additional concern is RBR Capital's limited and lackluster track record when it comes to activism. The fund, run by Rudolf Bohli, has launched three activist campaigns at two companies, according to FactSet Research Systems Inc. Earlier this year, the fund sought unsuccessfully to install three dissident directors to the board of GAM Holding AG.
In 2016, RBR and another fund, Cologny Advisors LLP, sought to install two dissident directors at Gategroup Holding but they were defeated at the company's annual meeting, FactSet reported. The fund had more success in 2015 when it succeeded at installing two directors as part of a settlement with the airline catering company. In May 2016, a unit of China's HNA agreed to buy the company, giving RBR Capital a win.
At Credit Suisse, RBR Capital has a few things going for it. The firm's share price has declined substantially since Thiam took over in 2015, which likely means that there are a number of disgruntled investors. "There are undoubtedly a lot of unhappy shareholders," said Trenchard. "There probably are a lot of people who think there isn't anything wrong with an activist kicking the tires."
In addition, the activist fund reportedly has the support of ex-Credit Suisse investment bank co-chief, Gaël de Boissard, another positive. "Gaël will know where the bodies are buried," said Trenchard.
The fund plans to formally announce its strategy at the Robin Hood investors conference in New York on Thursday. A key question will be whether RBR Capital can get the backing of big Credit Suisse investors.
As noted before, already some large shareholders have already opposed to RBR Capital's plan. At the same time, the fund's limited and lackluster activist track record coupled with the sheer size of its target—CS has a market capitalization of 39.6 billion francs—all suggests that the campaign won't achieve its primary breakup goal. And also consider that no activist has succeeded at breaking up a mega-bank.
However, maybe a secondary goal could be achieved. Consider Knight Vinke's campaign at UBS. Trenchard said that as Knight Vinke put the pressure on in 2013, UBS expedited a move to massively de-risk its investment bank within the large institution's overall structure.
"That was in line with what Knight Vinke wanted and it got broad support from investors and regulators," he said. "Knight Vinke received a lot of general support for the idea but they didn't get explicit support from a lot of investors."
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