Activist investor Knight Vinke once called for UBS to split off its investment banking arm. The hedge fund has renewed its criticism of investment banks – which reads like direct criticism of Credit Suisse.

Eric Knight is well-known in Swiss banking circles: the hedge fund founder in 2013 attempted to break up wealth management and investment banking of UBS. The headline-grabbing bid failed; Knight Vinke retreated last year.

Now, Knight is back with more criticism of investment banks in Europe, the largest of which are Deutsche Bank and Credit Suisse.

Job Cuts Not the Answer

The hedge fund manager, who manages $800 million and says his investments have produced 50 percent return this year, is particularly irritated over rampant cost-cutting at investment banks.

Cutting jobs and risk isn’t the right response to pressure on profit margins due to stricter rules imposed on investment banks, Knight told «Reuters».

On Wednesday, Credit Suisse Chief Executive Tidjane Thiam announced that the bank seeks to slash spending by another 1 billion francs, on top of ongoing billion-franc savings goals, partly through cutting jobs. The cuts are planned across the bank, including the investment banking and trading arm of Switzerland’s second-largest bank.

The problem goes deeper, Vinke argues: European banks are unprofitable because they are actually too small. Since the continental capital markets are very fragmented, mergers generally aren’t very promising.

Beyond Borders

The firms must look beyond Europe – to the U.S. and to China, he argues. 

«Is there a future for investment banks in Europe? I think there is, but it comes from the outside,» Knight said. He urged Europe’s investment banks to merge and re-incorporate outside Europe.

«There would be tremendous value for shareholders,» according to Knight.

The activist investor, who has taken on major corporations like Royal Dutch Shell and HSBC, sees this plan working for one or two firms – the rest «will have to liquidate».

Eyeing UBS, CS

While it may be tempting to dismiss the scenarios as obscure and unrealistic, Knight should not be underestimated. The investor says he remains interested in UBS and Credit Suisse and predicts that growing risks in the economic system could mean change for the two firms next year in case of another crisis.

This confirms Vinke’s stance from last February: the activist closed out his UBS position, but said he could be persuaded to step in again.