The big bank is stuck in a vicious circle of bad results and bad press. But others have made it back too. How Credit Suisse can get back on track.
Red as far as the eye can see? Credit Suisse is currently grappling with bad quarterly figures rather than with color attacks from chaos, as here in Basel in May 2020.
How does she get out of there? Credit Suisse is going through a deep crisis. Next week it will again present weak quarterly figures, the bank has already sent out a profit warning in advance. For the umpteenth time. A series of scandals and unfulfilled promises have cost CS a great deal of trust; shareholders and financial analysts have also lost faith. CS shares fell to a record low of less than five francs last week.
And yet experience shows that companies can regain trust. After its near-death experience in the 2008 financial crisis, UBS was the laughingstock of the nation, partly because it had to accept state aid. But under Axel Weber and Sergio Ermotti, and with the support of the Financial Market Authority, it regained its reputation as a reliable and successful bank. Insurers like Zurich and Swiss Life also made a comeback after serious crises. Any lessons from this on how CS can restore its good reputation?
The limits of communication
The most important thing first: Warm words will not be enough. “Defensively, the communications department at CS did a good job,” says reputation consultant Bernhard Bauhofer about the bank’s series of scandals. But communication is just the last step on the way back. The company must first have delivered consistently before the public believes any good news again. Otherwise success reports will fizzle out.
CS therefore remains challenged in its day-to-day business: it must become more efficient, win new customers and expand business relationships with established customers. Investors have understood that the bank will not report large profits for the time being due to its de-risking in the investment bank as well as the difficult market conditions. But they want to see signals that the CS tanker is turning in the right direction.
And beyond? Bauhofer advocates a radical approach: the excesses in remuneration must be remedied, employees treated with respect and managers put on the curb – with a code of conduct that is actually implemented. And you have to tackle problem cases radically. The message from the bank must be: “We are shutting down. We’re going to start again from scratch and set ourselves up again. From now on we live Swiss Banking.»
Not everyone would prescribe such heavy medicine for the bank. But it seems clear to everyone inside and outside of CS that the corporate culture of the past few years was often at the root of the problems and had to be redesigned. The bank employees were encouraged to take risks, but in many cases they were not responsible for the consequences of their actions. Executives encouraged or covered up such behavior and ignored red flags for short-term gain.
No empty promises
Just how long will the culture change take? Credit Suisse used the term “transition year” early on to talk about 2022. The term says two things: the coming year will be bad, but from 2023 things will start to improve again.
For the manager and former CVP National Councilor Kathrin Amacker, who took care of the reputation of her employers in management positions at Novartis, Swisscom and SBB, the term is problematic: the management will lose further credibility if 2023 does not get better and the transition takes longer .
That in turn is quite possible, says Amacker. “A real cultural change takes about a year for each hierarchical level.” Merely formulating a company purpose or “purpose” is not enough. Each team needs time to determine what that means for their own day-to-day work. Only then can guiding principles be connected.
You have to keep in mind that the management and board of directors are only a handful of people, but CS has 50,000 employees. Management must set the direction, but only the entire workforce can implement cultural change.
During its crisis, UBS used the motto “We will not rest” for five years. Language images help to convey a long-term transformation process.
Transparency – as far as possible
Precisely because the journey is taking a long time, according to Amacker, it is important that the public is informed regularly and as transparently as possible about progress and setbacks. Then the audience won’t blame the company when unexpected obstacles arise and the transformation takes longer than expected. “Many brands have become trusted brands precisely because they were able to turn awkward situations into something good,” says Amacker. However, transparency is also easier promised than implemented, as two examples from CS show.
In July 2021, the bank published the investigation report into the Archegos debacle in an exemplary manner. The report, prepared by a US law firm, is not pleasant reading and mercilessly shows the mistakes: the management and the supervisory authorities have failed. Above all, but not only in the investment bank. Also because of this scandal, CS took a close look at its risk situation and parted with some delicate positions and customers.
CS also had the second major scandal of 2021, involving Greensill Capital, investigated. At first she wanted to share her findings with the public here as well; at least in a reduced form. So far, however, this has not happened, even after important investor groups had called for it again this spring.
At the general meeting, the majority of investors followed the argument of the bank management that publication of the bank in the legal disputes surrounding Greensill could damage it. The argument is valid. Nevertheless, CS had promised more than it was ultimately able to deliver. And she couldn’t dispel the suspicion of outsiders that she wanted to keep the misconduct of the bosses under the cover.
Do not replace all bosses at the same time
The face of a company is its executives. The crisis therefore raises the question of whether the right people are still pulling the trigger. However, CS has already replaced a large part of its management and board of directors. Nevertheless, the liberation did not succeed.
Moving the chairs was probably a necessary but not a sufficient condition for the transformation to succeed. “It’s not done with the replacement of the top staff,” says Bernhard Bauhofer. Neither CEO Thomas Gottstein nor President António Horta-Osório could have brought about a change at CS. “Now, with Axel Lehmann, we have the concentrated portion of Swissness at the top, but still no change.”
From Kathrin Amacker’s point of view, the personnel changes were very important for the bank, as they brought the central cultural problem into focus: nobody used to take responsibility for mistakes. “Such changes have an enormous charisma, also internally. All employees know: Misconduct that was previously tolerated is no longer possible.”
It remains unclear whether CEO Thomas Gottstein would also have to vacate his position because he belongs to the old guard and has lost credibility. After all, he was already CEO when the problems with Archegos and Greensill came to light. But the bank also needs a minimum of continuity at the top, and along with Gottstein, this is only guaranteed by David Mathers, who is still CFO. But Mathers will also leave the bank soon. In any case, CS President Axel Lehmann has clearly backed Gottstein so far.
controversy bonuses
Poison for the company’s reputation is also the high variable remuneration paid not only at CS. Bauhofer calls for a change to a real meritocratic system. The fact that the best talents in the world can only be found with the current bonus culture is a bit advanced.
The remuneration of the CS management was significantly meager for 2021 than in previous years. However, the 1,400 so-called “risk-takers”, the bank’s top executives, earned a total of around 1.5 billion francs, not much less than in previous years. This earned CS harsh criticism from shareholder representatives such as the Ethos Foundation.
Executive search professionals nevertheless warn against radical cuts. The parameters of the bonuses can be adjusted well. But if the bottom line is that there is much less than before (or with the competitors), you also lose good people. This has probably already happened in some areas at CS. It is a brutal conflict of goals that the bank cannot avoid in the coming wage rounds either.
Bet abroad
However, CS has one advantage: the bad press comes mostly from Switzerland and from the leading Anglo-Saxon media. The situation is different in the growth markets of Brazil, Indonesia and India. Both Amacker and Bauhofer confirm that the Swiss view the bank more critically than the Asians and Latin Americans. Clients in emerging countries have traditionally seen “Swiss banking” rather undifferentiated as a distinction, says Bauhofer. But today the wealthy customers are better informed. “You can see that something is wrong with the bank.”
Performing well, communicating modestly and transparently, being modest when it comes to bonuses: on (newspaper) paper it all sounds doable. The CS is by no means lost. However, it will be a long time before she has convinced the public of this, even if the bank does everything right from now on.