The power of the media and the speed of information can be quite something to behold in 2022. Thanks to a combination of social media and the fierce competition among online news outlets, a story from Swiss financial news blog Inside Paradeplatz that State Street was mulling a takeover bid for Credit Suisse – citing one anonymous source – reached just about every corner of the internet within hours.
The stock of Credit Suisse subsequently rose, while State Street’s went in the other direction. As a keen follower of State Street’s asset servicing business and avid listener of quarterly earnings calls – though less familiar with inner workings of the asset management side of the business – my stages of reactions and thought process may have followed a similar pattern to others.
- Wait, surely not?
- Would that make sense? They have been active in M&A I suppose.
- Aren’t they still in the long process of finalising the deal for BBH’s Investor Services unit?
- It would cost HOW MUCH?
- Okay, I’m not convinced.
- State Street are putting out a statement… it’s a decline to comment. Is that a denial though?
- Maybe acquiring part of the business would make sense?
- Let’s just see how this develops tomorrow.
Cue ‘tomorrow’ and I’ve just seen a report that Credit Suisse chief executive Thomas Gottstein referred to a question about the offer as “really stupid”. Speaking at a Goldman Sachs event, Gottstein seemed to shrug off the rumour pretty sharpish.
As a custody publication, this potential acquisition that centres around asset management and investment banking falls a little outside of our remit. At the same time, however, we would probably cover a State Street custody mandate in Timbuktu, so the Boston-based bank potentially splashing the best part of $20 billion on a Swiss bank deserves a few words.
Firstly, it seems like an unlikely marriage. I think the BBH deal is incredibly important to State Street and remains in the late stages of completion, albeit with some challenges in the regulatory approval process. Once finalised, the integration process will be arduous and time consuming. It’s a complimentary business, meanwhile the Charles River deal years earlier sat perfectly with the custodian’s front-to-back office ambitions.
Credit Suisse, on the other hand, seems less of a puzzle piece, though on the asset management side you can see the reasoning behind the attraction – with widespread M&A activity in this space.
But let’s not cast aside State Street’s obvious ambitions. It took over one of the largest OMS providers, and a top 10 custodian which would propel it to ‘largest custodian in the world’ status. Ron O’Hanley seems to have aspirations for State Street to be seen as more than just a back-office custody provider.
But taking on the investment and other broader banking businesses of Credit Suisse would change the profile of State Street entirely. Therefore, a partial acquisition of the asset management business or what is left of its prime division could be more plausible.
Credit Suisse’s recent troubles have drawn much attention, and just this week the bank provided a trading update addressing market conditions which have caused challenges in the second quarter of 2022 – maintaining a trend of recent challenging quarters experienced by the investment bank.
The well-known collapse of Archegos Capital Management cost the Swiss-bank $5.5 billion and forced a wholesale review of risk management across the business and which already saw job losses occur. The bank has essentially all-but pulled out of the prime brokerage business.
If nothing comes of this, perhaps State Street’s management will be flattered to be touted as a potential buyer, and as an organisation able to cough up tens of billions and acquire a business while part-way through another major transaction. For Credit Suisse, one can imagine more of these reports coming out in the months to come.
If it did come to fruition, I’ll go back to reaction number 1: wow.