Credit Suisse Needs to Strengthen Board, Herro Tells F&W

  • Herro says that `apparently there was a problem' at the bank
  • Bank needs board members that prevent future `blunders'

Credit Suisse Group AG needs to strengthen its board of directors after Switzerland’s second-largest bank disclosed almost $1 billion of writedowns linked to illiquid positions, David Herro, chief investment officer at Harris Associates, told Finanz und Wirtschaft.

“Apparently there was a problem within the bank,” Herro told the Swiss newspaper in the interview published on Wednesday. “That shows that there’s probably a need to strengthen the board. Within a complicated financial institution such as Credit Suisse, there’s a need for people on the board that understand the business and make sure that there are no more such blunders.”

Credit Suisse posted a bigger-than-expected loss in the fourth quarter as a result of $633 million in writedowns on mainly distressed credit and securitized pools of risky loans, which caught the top management off guard. As of March 11, it was projecting further writedowns of $346 million that, combined with a downturn in global markets that has depressed trading revenue, will probably wipe out first-quarter profit, Chief Executive Officer Tidjane Thiam said last month.

Harris Associates, based in Chicago, has held Credit Suisse shares for more than a decade. It owned “just over” 8.5 percent of the Swiss lender in February, Herro said at the time.

Board Changes

Chairman Urs Rohner told Bilanz magazine in an interview published earlier this month that he’s spoken with most of the lender’s largest shareholders and that they support its management and strategy. Credit Suisse is scheduled to hold its annual general meeting on April 29.

The bank proposed Alexander Gut and Joaquin J. Ribeiro to join as non-executive board members at the AGM. Both have “extensive experience in global banking,” Credit Suisse said in the agenda for the meeting published last month. Sebastian Thrun will take on a new role within the bank and won’t stand for re-election to the board.

Gut holds a PhD in Business Administration from the University of Zurich and worked for KPMG and Ernst & Young. He’s the son of Rainer Gut, who was Credit Suisse Chairman between 1983 and 2000, and still serves as Honorary Chairman of the bank. Rainer Gut is also former chairman of Nestle SA.

Ribeiro, who holds an MBA in Finance from New York University, is Vice Chairman of Deloitte LLP (USA) and chairman of the company’s global financial services industry practice, according to Credit Suisse’s website.

The shares have lost about 33 percent of their value this year, with Thiam announcing a second round of restructuring measures last month to deepen cuts at the investment bank and shore up profitability. The new CEO is “taking the right measures,” using “the resources where they achieve the biggest returns over a cycle,” Herro said.

“Through this restructuring, the risks in investment banking will be diminished and the freed-up capital used to accelerate an expansion in wealth management,” Herro told the newspaper. “They should already have implemented this strategy two or three years ago.”

Credit Suisse jumped 7.7 percent to 14.45 Swiss francs at 5:19 p.m. in Zurich, while the Bloomberg Europe Banks and Financial Services Index rose 5.8 percent. The bank will report first-quarter results next month.

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