Feb 6 (Reuters) - Credit Suisse Group AG (CSGN.S) is marketing its First Boston investment banking unit to investors as a "super boutique" and sees revenue surging to as much as $3.5 billion, as the embattled lender seeks to raise funds for the revamped business, a company document seen by Reuters shows.
The marketing presentation, which has not been previously reported, shows the Swiss bank is betting on an aggressive rebound at CS First Boston (CSFB) after revenue plunged 69% in 2022.
In the sales pitch to investors, dated January, the bank said it aspires to surpass the $2.5 billion net revenue target it set out only last October for the unit, taking into account that the business will be independent and assuming "a normalized market environment."
The bank also lays out in greater detail its reasoning for the restructured division's competitive edge in a crowded investment banking market. CSFB, the presentation said, would be a "super boutique”, more focused than large banks but broader than advisory firms that do not offer services such as financing.
The pitch to investors comes as the deals market posted a marked slowdown last year that hit many Wall Street firms, with bankers projecting a slow start to the year.
The marketing presentation, which includes detailed terms for its $500 million capital raise, reveals for the first time that the Swiss bank is looking to raise the funds through a five-year exchangeable debt security, paying 6% annual interest.
The money will be raised by the parent, Credit Suisse, and investors will have to swap their the notes into shares of CSFB if there's a spin-off or initial public offering.
The bank is targeting an IPO for CSFB in 2024 or 2025, a source familiar with the situation said.
Credit Suisse declined to comment for this article.
Last October Credit Suisse embarked on an overhaul of the bank, which has suffered billions of dollars in losses from a series of scandals and is now on its third chief executive in three years.
It plans to shed riskier assets and focus on more profitable businesses such as wealth management. One major piece of the restructuring is the creation of CSFB, reviving the First Boston brand, which Credit Suisse had first bought into in 1988.
The plan is for CSFB to operate as an independent capital markets and advisory bank headquartered in New York. Veteran dealmaker Michael Klein has stepped down from the Credit Suisse board to become CEO.
In announcing the overhaul, CEO Ulrich Koerner in October said the bank already had a $500 million commitment from an investor but did not name them. Reuters could not determine why Credit Suisse was soliciting more investors for the capital raise if it already had a commitment for the full amount.
'REIMAGINES' INVESTMENT BANKING
CSFB, the bank said in the document, “reimagines” its investment banking business.
An "acquisition and strategic finance" group would focus on financing for deals and a "treasury solutions" unit would manage bond sales and help fund select clients.
Third-party capital would help fund the unit's lending as a standalone entity, Credit Suisse said, without providing additional details. At the same time, Credit Suisse would pull back from certain businesses, such as providing revolving credit lines to companies and non-essential trading.
Further, CSFB will be “enhanced by the expected acquisition” of Klein’s advisory boutique, the Klein Group LLC. Founded in 2010, the firm has advised on $1.5 trillion of transactions, including such deals as the IPO of Saudi oil giant Aramco (2223.SE), according to the presentation.
Bloomberg News reported last month that Credit Suisse was nearing a deal to buy the boutique for a few hundred million dollars.
Klein declined to comment through a spokesperson.
FINANCIAL PROJECTIONS Financial results and projections provided in the presentation offer a snapshot into the steep decline in CSFB’s business last year.
The data, which is based on draft historical financial results and which has not been aligned to the new CSFB model, show net revenue fell to $1.4 billion in 2022 from $4.5 billion the previous year.
Credit Suisse projected a strong rebound in revenues for the unit. Internal financial plans estimate a 43% rise in net revenues in 2023 to $2 billion. Revenues are seen growing to $2.7 billion by 2027, while costs remain flat over that period, the document shows.
Longer term under its plan for CSFB, Credit Suisse projects net revenues could rise to as much as $3.5 billion.
The bank said 10 of the 11 members of the current management committee at CSFB started their careers at First Boston or Donaldson, Lufkin & Jenrette, a Wall Street firm that Credit Suisse acquired in 2000.
Credit Suisse has been plagued by an exodus of senior bankers over the past couple of years. To “retain and recruit best-in-class advisory talent,” CSFB plans to use equity and expects to be partly owned by “its senior leaders.”
CSFB expects to be regulated as a non-bank, which would give the business an “edge on compensation," the bank said. At the time of an IPO of CSFB, investors would have to convert their holding into shares, which they would receive at a 10% discount to the listing price, the term sheet shows. Absent a deal, investors would receive 103% of the principal at maturity, the document shows.
Credit Suisse's $1.5 billion of 6.373% senior bonds due on 2026 are currently yielding around 7.8%, Refinitiv data show.