Does Credit Suisse look to UBS for inspiration?

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To understand what Zurich-based Credit Suisse Group might do next, just look at crosstown rival UBS AG.

UBS bundled several smaller private banks into a separate wealth-management unit in February 2003. Credit Suisse plans to do the same next year. UBS shed a stake in an insurance firm in 1999. Credit Suisse sold its insurance firm this year.

UBS said a few years ago it would concentrate on operating its various businesses as an "integrated bank." Credit Suisse has started doing just that with its three main divisions -- wealth management for individuals, asset management for institutions and corporate-and-investment banking.

Even "naming" decisions seem similar. UBS discarded some brand names to operate as a single brand several years ago. In January, Credit Suisse launched a new logo world-wide, dropping its First Boston name.

A UBS spokesman declined to comment.

A Credit Suisse spokesman said the bank has an independent strategy. In a statement, Credit Suisse said its integration plan has its roots as far back as 1978, when it first invested in First Boston, the U.S. investment bank.

Though several of the business lines of UBS and Credit Suisse have evolved in similar ways, Credit Suisse points to other areas where it says it has been a leader, including its use of alternative investment products like hedge funds and private equity and of emerging-markets investments.

Indeed, Wednesday Credit Suisse announced that in addition to an earlier plan to team up with General Electric Co. to launch an infrastructure fund, seeded with $500 million from each company, it is enlarging its presence in the commodities world through a strategies alliance with Ospraie LLC. It is also joining with China Renaissance Capital Investment, a Chinese investment firm, to take stakes in smaller developing companies and has established a partnership with Abu Dhabi Future Energy Co. to fund alternative-energy initiatives.

Investors seem happy with the UBS-like approach, much of it undertaken since Credit Suisse Chief Executive Oswald Grubel took over sole leadership of the bank, following the July 2004 departure of co-CEO John Mack, who now heads Morgan Stanley.

Since then, the company's shares have risen 60 percent to about 70 Swiss francs ($56) a share, outperforming the DJ Stoxx 600 banking-sector index, which rose 44 percent in the same period. UBS shares made a similar climb, rising 63 percent to 71.3 Swiss francs in the same period.

As of 4 p.m. composite trading Wednesday on the New York Stock Exchange, Credit Suisse American depositary receipts were at $56.15, up 17 cents. UBS ADRs were at $57.44, up 34 cents, also on the Big Board.

Pioneer Investments, the fund management arm of Unicredito Italiano SpA, had tripled its Credit Suisse stake to about 8.3 million shares as of June 30, up from 2.7 million in October 2004, making it one of the bank's largest shareholders, according to FactSet Research Systems Inc.

"We had been holders of UBS and continued to build our stake in Credit Suisse when the company began to mirror the strategy of UBS," said Jeremy James, a Pioneer Investments European banks analyst.

Credit Suisse trades at 10 times expected 2006 earnings, less expensive than UBS shares, which trade at about 13 times earnings, according to Citigroup. Analysts are wondering whether Credit Suisse can narrow that gap.

"If we assume that Credit Suisse is probably where UBS was three years ago," then Credit Suisse's share price has room to grow, Merrill Lynch said in a research report last month that gave the stock a "buy" recommendation. (Merrill Lynch or its affiliates own Credit Suisse shares and has sold it banking services.)

Both Credit Suisse and UBS derive about 40 percent of their profit from wealth management, and both have small retail-banking operations in Switzerland. But there are differences between the two. In investment banking, in particular, UBS and Credit Suisse have different strengths, the former in overseeing stock offerings, the latter in junk-bond offerings.

Going forward, some questions remain about Credit Suisse's strategy. Its investment bank has struggled to control costs. Some investors say they wonder how it will replace earnings once generated by insurance operations, which it sold in June, or how it is going to invest the proceeds from that sale.

"All in all, it remains an act of faith for investors whether to believe in the financial targets for 2007-08," Citigroup said in a research note in August. Citigroup has a "hold" recommendation on Credit Suisse's stock, meaning it is risky. (Citigroup has sold banking services to Credit Suisse.)

In 2000, both UBS and Credit Suisse had stock-market values of about $52 billion each, according to Thomson Financial. But then Credit Suisse took strategic missteps, while UBS made several smart expansion moves. UBS's market cap today is about $120 billion, compared with Credit Suisse's $70 billion, according to Thomson Financial.

While UBS was aggressively expanding its investment- and private-banking businesses, Credit Suisse was struggling to recover from its exposure to the dot-com boom, undergoing regulatory probes and management turmoil in the process.

Mr. Grubel presented his "one bank" strategy in December 2004. The goal: have all operations working together to cross-sell products and services between the asset-management, investment-banking and wealth-management operations.

So far, the unified approach is showing potential, but analysts are still waiting to see whether the bank can boost sales while cutting costs. Credit Suisse plans to give an update on its strategy on Jan. 22.

One of Mr. Grubel's biggest changes was to unwind what is known as a "bancassurance" strategy, a plan to cross-sell banking and insurance products and services. As its insurance unit, Winterthur, struggled, Credit Suisse was forced to inject cash to prop up the business. In June, Credit Suisse sold Winterthur to French insurer AXA SA. The bancassurance business that UBS abandoned in 1999 was more modest.

"Credit Suisse is trying to adopt best practice. It just so happens that best practice in many areas is UBS," said Matt Spick, an analyst at Deutsche Bank who recommends buying Credit Suisse stock. "It's going down the same path UBS already went down in the past, but if UBS didn't exist, this would still be the best way to go." (Deutsche Bank or its affiliates own stock in Credit Suisse and sell it investment-banking services.)

In early 2007, Credit Suisse plans to consolidate its small private banks into a separate wealth-management unit. The private banks have struggled with increased competition lately and were bogged down by the new regulations on risk management, fighting money laundering and antiterrorism.

Credit Suisse hopes to spread compliance and administrative costs over a wider client base by bundling them together.

While UBS bundled its private banks together in February 2003 and sold them in December 2005, Credit Suisse has said its newly consolidated private bank -- to be called Clariden Leu -- is core to its business and won't be sold.

UBS Seems to Have a Copycat

The Credit Suisse turnaround strategy is striking in its similarity to that of rival UBS.

UBS

1996 -- Expands into insurance. Acquires a 25 percent stake in Swiss Life.

1997 -- Integration of businesses. After the merger of Swiss Bank Corp. and Union Bank of Switzerland was announced, the newly formed UBS said it would move toward a "truly global, integrated financial-services firm."

1999 -- Sells off insurance unit. UBS and Swiss Life terminated agreement and UBS sold its 25 percent holding.

2002 -- Single branding. UBS announced it would, from mid-2003, move to one brand and drop names such as UBS Warburg and UBS PaineWebber.

2003 -- Consolidation of private banks. A holding company is created to incorporate UBS's five independent private banks, "targeting economies of scale not achievable by each organization on its own."

CREDIT SUISSE

1997 -- Expands into insurance. Acquires Winterthur Insurance

2004 -- Integration of businesses. Presents "one bank," to integrate its private-banking, asset-management and corporate- and investment-banking businesses and encourage cross-selling among the divisions.

2006 -- Sells off insurance unit. Winterthur is sold to French insurer AXA for 12.3 billion Swiss francs.

2006 -- Single branding. In January, Credit Suisse launched a new logo world-wide, dropping the "First Boston" name in the process.

2007 -- Consolidation of private banks. Beginning in 2007, Credit Suisse said it plans to merge its smaller private banks plus the securities dealer, Credit Suisse Fides, to form a single autonomous bank.


Henny Sender contributed to this article.


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