Credit Suisse's Bosses Didn't Know
The scariest moment from Credit Suisse's call with analysts on Wednesday was when CEO Tidjane Thiam said he had been kept in the dark about illiquid trading positions that contributed to about $1 billion of writedowns in the last two quarters.
The bank is "aggressively" exiting the problem areas, Thiam said. There "have been consequences, but I don't want to name names," he added. It wasn't just him -- the bank's CFO and other "key decision makers" were also taken by surprise, he said later.
While it's comforting that Thiam now appears to have a more visibility on the state of the bank's accounts, the episode speaks to the depth of the change he still has to engineer. Thiam assured investors processes have been changed, but couldn't rule out further surprises given the complexity of the business.
The revelation came as Thiam announced he is speeding up the previously announced restructuring plan. Instead of eliminating 3.5 billion Swiss francs ($3.6 billion) of costs by 2018, the bank will now target 4.3 billion Swiss francs. The bank now plans to cut 6,000 jobs, up from 4,000.
Thiam also warned trading revenues are expected to fall by up to 45 percent in the first quarter from a year earlier.
In the troubled global markets group -- a source of earnings volatility -- the target for risk-weighted assets has been reduced to $60 billion by the end of 2016 from as much as $85 billion previously. Distressed credit and other positions "not commensurate" with the bank's risk appetite are being scaled back sharply.
The accelerated strategic overhaul is a positive. The bank's shares were up 2.3 percent after the announcement.
Still, Thiam's admission that senior executives didn't know about problems in significant parts of the business is a real worry. The CEO, who took over in June, told Bloomberg TV's Francine Lacqua that the problem was linked to a high cost base:
“A lot of the problems in the investment bank have been that people have been trying to generate revenue at all costs,” Thiam said. “People were reluctant to reduce it because it would have exposed their cost problem.”
In Credit Suisse's global markets group, costs as a proportion of income have been rising in recent years. Thiam's efforts to turn this trend around are helpful. He's even taking a 40 percent cut in his own bonus, to show solidarity with staff as bonuses in the global markets business were cut 35 percent.
But there's also a cultural overhaul that's needed too. "Attitude to risk has to change," Thiam said, although "that cannot happen overnight."
Thiam will earn some plaudits for his refined strategic plan. But investors should know there is no quick fix for a bank the size of Credit Suisse.
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