Credit Suisse Just Got More Boring
If anyone had suggested in 2007 that the head of a staid British insurance company could win the top job at a freewheeling global investment bank, they'd have been laughed out of the pub. Investment banking, though, is trying to shed its casino image. The firms that own investment banks have been nudged by regulators to concentrate on areas of finance that are more mundane -- and, increasingly, more profitable. So today's news that Credit Suisse is hiring Tidjane Thiam from Prudential Plc to replace Brady Dougan as chief executive officer is a welcome affirmation that banking is becoming more boring. (No offense to Thiam, who seems an interesting chap.)
Here's a chart that I might have used if I were the recruitment consultant pitching Thiam, who fled the Ivory Coast in 1999 when a military coup deposed the government he was working for, to the Swiss bank's board:
For sure, the insurance industry hasn't been through the wringer the way the banking sector has in recent years, so the comparison is almost bound to flatter Thiam. But under his stewardship, Prudential has also trounced its European insurance peers; including dividends, investors have made twice as much from Prudential shares as they could have made on a basket of 39 insurance stocks (including Prudential):
Dougan, meantime, has presided over a fairly terrible time for Credit Suisse shareholders. Among its European peers, only UBS has fared worse during his tenure:
The leadership switch comes as banks ranging from JPMorgan Chase to Royal Bank of Scotland to HSBC acknowledge that the current regulatory regime makes some of their sprawling businesses unprofitable. Thiam's experience in Asia -- Prudential, Britain's biggest insurer by market capitalization, generates half of its revenue there -- could be key in this respect. Asia's market seems on track to expand even as opportunities elsewhere in the world shrink. HSBC, for example, makes 78 percent of its profit in Asia. Credit Suisse could try to do the same, particularly by selling its wealth-management products to the region's increasingly affluent middle classes.
There's one caveat Credit Suisse might bear in mind. In 2010, Thiam made an audacious $35.5 billion bid for AIA Group, the third-biggest insurer in the Asia-Pacific region, calling it a "once in a lifetime" opportunity. With the support of his board, Thiam had decided not to share his plans with Prudential's regulator, the Financial Services Authority, who instead learned about the proposed deal from media reports. Three years later, Thiam was publicly censured for the secrecy, which he said was prompted by concerns about the transaction leaking to the press, and his firm was fined 30 million pounds ($45 million), the fifth biggest levy in the Financial Services Authority's history. Ruffling regulators is the last thing any financial firm should do in the current political climate, so Credit Suisse would be wise to curb any inclination on Thiam's part to repeat his adventure.
Today's 9.1 percent pop in Credit Suisse's share price suggests investors approve of a leader who won't be beholden to the legacy of past expansions. The more banking can echo insurance in providing stable, boring financial services, the better.
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