Credit Suisse (
CS
) has reportedly finalized the sale of its exchange-traded fund (
ETF
) unit to BlackRock (
BLK
) in what is the latest step by the second largest Swiss bank
towards streamlining its diversified business operations. The unit
which manages
ETFs
worth $17.6 billion went on the block last October and was pursued
by State Street (
STT
) also. BlackRock clinched the deal earlier this month - not a
surprise considering that the world's largest asset management firm
has been particularly keen on expanding its footprint in
Switzerland. Credit Suisse is the fourth-largest provider of ETFs
in Europe, and it looks like the bank has been handsomely
compensated by BlackRock for exiting this business.
We are in the process of updating our
$25 price estimate for Credit Suisse's stock
in view of the recently announced relaxation to the Basel III
capital requirement rules.
See our complete analysis of Credit Suisse
here
Credit Suisse has been undergoing a series of organization-wide
changes the last few months in a bid to cut costs and improve
operations efficiency due to the notable decline in the bank's
income figures over recent quarters. The most notable was the
bank's decision to reorganize its operations into two roughly equal
businesses: the Private Banking & Wealth Management division
and the Investment Banking division (see
Credit Suisse Announces Simpler Organizational Structure To Focus
Business, Cut Costs
). And as it goes about merging its private banking, wealth
management and asset management businesses in the most
cost-effective manner, the bank earmarked certain business units
which it no longer wanted to invest in either because of low
profitability or considerable capital requirements. The ETF
business, with its slim margins, falls in the first category.
Credit Suisse's ETF business with under $18 billion in assets
represents less than 5% of the bank's asset management business
which has more than $400 billion in assets under management
(represented in the chart below).
Our analysis of the bank estimates the value of the ETF business
at around $160 million - a figure we reach based on the size of the
assets, average fee income generated by Credit Suisse's asset
management business and operating margins for the business.
Although the terms of BlackRock's purchase agreement with Credit
Suisse remain undisclosed, reports that highlight the former's
intent to acquire the business "at any cost" could mean the Swiss
bank could easily have made $200 million on the sale of the
business.
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