Selling asset management and downsizing investment banking might make sense
Throwing out a few executives won’t be enough for a scandal-ridden Credit Suisse. The double bankruptcy of its clients Archegos Capital Management and Greensill Capital should lead the Swiss bank to a deep examination of conscience. Restructuring and discards may be required.
The Zurich-based group took more than a week to figure out its losses after the Bill Hwang-led fund defaulted on the margin calls. Credit Suisse shares fell nearly a fifth during that time.
The estimated hit of 4.4 billion Swiss francs (4 billion euros), finally unveiled yesterday, is higher than last year’s pre-tax profit. The prime brokers Credit Suisse were slower than rivals such as Goldman Sachs to divest the equity positions that were part of the equity derivatives sold to Archegos.
The only good news from yesterday’s news is that the bank’s Tier 1 Common Equity ratio will remain above 12%, making a dreaded call for cash less likely. However, losses from the bankruptcy of funds tied to supply chain finance company Greensill could cause further damage.
Aside from the shareholders, the immediate victims are the head of the investment bank, Brian Chin, who previously ran the group’s independent trading business, and the head of risk, Lara Warner, who are leaving. The outgoing president, Urs Rohner, renounces a salary of 1.5 million Swiss francs (1.4 million euros), but his global remuneration will continue to exceed 3.2 million (2.9 million). The board of directors is also launching external investigations into the two scandals, canceling executive bonuses for 2020, cutting a proposed dividend by two-thirds and suspending the share buyback.
It’s a good start, but a lot depends on the scope and outcome of the council’s investigations. Recent episodes have exposed systematic failures in risk management that the bank cannot simply blame on two people leaving. Shareholders deserve an explanation of the control policies that have failed and how CEO Thomas Gottstein and incoming president António Horta-Osório are going to correct them.
Both should take advantage of the crisis to carry out a major corporate surgery. Credit Suisse’s core of private banking and Swiss households are being polluted by peripheral businesses that offer little to the rest of the group. Selling asset management and downsizing investment banking might make sense. Credit Suisse shares were flat after yesterday’s news. The lesson is that spring cleaning has only just begun.