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Credit Suisse’s SPG — what’s not to like?

Lettering Credit Suisse, Bern, Switzerland

Apollo and Pimco’s prospective purchase has been described as a ‘bad bank’, but some have reservations

It has been a rough year for many in the capital markets but perhaps none more so than for Credit Suisse. Reshuffle followed reshuffle and speculation followed speculation. Finally though, the picture is getting clearer.

As the dust settled, Apollo and Pimco emerged as the victors in the battle for Credit Suisse’s Securitized Products Group (SPG).

Despite Credit Suisse bankers telling GlobalCapital the SPG was the bank’s “jewel in the crown”, selling off its securitzation business suggested to many that it was a “bad bank” and would slowly be wound down, once the two asset managers had taken every sinew off the carcass of course.

The SPG is capital intensive and holds a large amount of the risk-weighted assets on the bank’s balance sheet, acting like an albatross around the wider business’ neck — so the argument goes. Credit Suisse have grave problems the new management is trying to fix and perhaps for them, in this particular moment, that argument is true.

But the idea that the SPG is under-performing or is at the heat of the bank's issues is folly.

The SPG was responsible for around $153bn of issuance across the public US securitization market in 2021, around 14% of the total volume.

In the US RMBS market, for example, they have dominated for years. Finsight league tables have rated the Swiss outfit as the top RMBS underwriter every year since 2013. Meanwhile, esoteric ABS paints a similar picture with Credit Suisse boasting a position among the top three for the past decade.

Credit Suisse’s fixed income division revenues, which are predominantly made up by the SPG, had a 28% decrease in Q3 compared with 2021. Despite this, they still accounted for around half of the investment banking arm’s $1.12bn revenue.

More importantly, as an analyst told GlobalCapital, the business remains profitable. Together, the analyst continued, these data points suggest that someone else will likely snap up the chance to buy the SPG if Apollo and Pimco are unable come to a final agreement. Numerous other sources have said that since the sale was made public it is unlikely that the SPG will be wound down. Why would it be, if the buyer can afford the capital intensive nature of the business and it remains profitable?

One investor in New York who learned his craft as a structurer said: “When you know you have your investor, it's just a matter of how do we structure it to make it work.”

Similarly, one ex-banker in London said it looked like the SPG would turn into a “captive market” for its new owners. Another banker said simply that it was a “great” business to be buying, especially when you know the seller needs to get rid.

Exactly how the new look SPG will surface remains unclear, but Apollo et al have seemingly bought a cash cow. There’s no need to take it to the slaughterhouse just yet.