Internal Strife

New Credit Suisse Boss Under Fire

tidjane
New CEO Tidjane Thiam plans to announce details of his restructuring plan in late October.
  • Why it matters

    Why it matters

    • The future course of growth at Credit Suisse, Switzerland’s second-largest bank, remains unclear.
    •  
  • Facts

    Facts

    • New CEO Tidjane Thiam wants to strengthen Credit Suisse’s equity capital blanket with a capital increase rumored at 5 billion francs.
    • The bank needs to reduce costs through layoffs, but cuts will be less severe than expected.
    • Mr. Thiam reportedly aims to further decentralize bank operations and shift more responsibility to the individual regions.
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First there was euphoria, but now disillusionment has set in.

When Credit Suisse announced the appointment of Tidjane Thiam as its new chief executive in March, its share price rose by 7 percent and soon eclipsed 25 Swiss francs, or $26. A half-year later, the share price is back to trading below that level.

Mr. Thiam, the former chief executive of insurer Prudential, doesn’t intend to present his new strategy for the Swiss bank until October 21. But he is already under pressure because many of his plans have been leaked to media in Britain and Switzerland. And from what they have seen, some analysts are disappointed.

“Unless Thiam pulls a rabbit out of a hat at the last minute, he doesn’t seem to have found the winning formula to solve Credit Suisse’s problems,” Dirk Becker, an analyst at Kepler-Cheuvreux brokers, said.

Expectations have been high that Mr. Thiam will revive a bank that has seen its fortunes flag ever since the 2008 financial crisis. The second-largest bank in Switzerland has struggled to remain profitable and watched its biggest national rival, UBS, find success with an earlier and deeper restructuring effort after 2008.

Among the new leaked details: Mr. Thiam is reportedly planning a capital increase rumored to be as much as 5 billion Swiss francs. The money is intended to pay for restructuring costs and strengthen the bank’s very thin equity capital blanket, among other things. The bank also reportedly plans to cut savings by 2 billion francs.

Other elements of his strategy are said to include cuts in investment banking, though much less severe than some had hoped, as well as exiting the prime brokerage business in the United States and the servicing of hedge funds.

He also wants Credit Suisse to withdraw from the investment management business in the United States. That Credit Suisse unit manages about 100 billion Swiss francs and barely makes a profit.

“So far none of this looks like a great success. ”

Andreas Venditti, Analyst

According to financial industry insiders, Mr. Thiam also wants to further decentralize the bank and shift more responsibility to the regions.

Credit Suisse had no comment on the media reports, but noted that a “thorough review of the strategy” is currently underway, including its options with respect to individual business divisions and capital requirements.

News of a possible capital increase has been met with particular skepticism. Many had hoped Mr. Thiam would make clear exactly where he plans to take the bank before asking for more money from shareholders.

“So far none of this looks like a great success,” said Andreas Venditti, an analyst with Vontobel. “What I’m missing are details on how Thiam intends to move the bank forward.”

Investors have their own ideas for how Credit Suisse should be revived. Many hoped that Mr. Thiam, who is from the Ivory Coast, would orient the major Swiss bank more radically toward Asia, just as Prudential had done before. Many analysts also want to see a stronger focus on the bank’s asset management business – a shift that was implemented with great success by Swiss rival UBS over the past few years.

Credit Suisse currently manages about $150 billion in Asia, making it the number three asset management company in the region, after UBS and Citi. Asia already accounts for about half of the bank’s growth. But whether and how Mr. Thiam is planning to accelerate growth there remains unclear.

“There’s a simple solution for that,” said Piers Brown of Australia’s Macquarie Bank.

He doesn’t believe that Mr. Thiam will try to solve the growth problem with a major takeover, as he did at Prudential with the acquisition of Standard Chartered. But Mr. Brown fears that the planned capital increase will remove pressure from the investment bank to save equity capital by further reducing the size of the balance sheet.

At the moment, it looks as though Mr. Thiam will stick to the bank’s old model of spreading its business across countries and segments – a “universal banking” strategy that has fallen out of favor with many global banks these days and was the hallmark of his unpopular predecessor, Brady Dougan. Instead of abandoning those global ambitions, Mr. Thiam apparently wants fresh funds to support it.

The question is what Mr. Thiam intends to do with the money. Is it merely to close holes on the balance sheet, which could emerge in the coming months amid regulators’ plans for stricter equity capital rules in Switzerland. Would it be used for a restructuring? Or will he want to keep some money in reserve to create more room to maneuver in the event of a small acquisition, for example?

If he used the money for acquisitions, Mr. Thiam could at least inject some imagination into the shares, Macquarie analyst Mr. Brown said.

But Mr. Becker, his counterpart at Kepler-Cheuvreux, believes that a capital increase merely to create a reserve is not a convincing idea.

The two analysts agree that Mr. Thiam will not be able present a miracle solution next week to increase growth and revenue, though. According to Mr. Brown, this could “take years.”

 

Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. To contact the author: alich@handelsblatt.com.

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