After a disappointing 18 months, the big bank tried to better explain its strategy to the investor community on Tuesday and banish the persistent pessimism surrounding the bank. The new management team has set good atmospheric accents, but there is not much that can be counted.
The new management team at Credit Suisse is unified and optimistic.
Investors no longer trust Credit Suisse (CS). Your share price is well below 6 francs, or around a third of the book value per share. It’s a catastrophic relationship. At UBS and the leading US banks, it is about one to one or even higher.
No wonder, then, that the big bank tried to show investors at a half-day presentation in London this Tuesday that their pessimism is overstated. A difficult task, as the big bank only had to warn them three weeks ago that they would once again end a quarter in the red and below expectations. This time not because of an expensive legal case or scandal, but because parts of the investment bank are weakening.
Cost savings and a lot of atmosphere
Because the earnings figures are only an issue again when the quarterly results are presented at the end of July, the so-called “Investor Deep Dive” brought little hard news. The only thing is that CS still wants to save around $200 million in technology and back office in 2022, based on a cost ceiling of $3.6 billion. In the next two years one wants to save another 200 million dollars each.
The main focus was to introduce the analysts and investors to the renewed management team, which is to move CS forward in the strategic framework that the bank set itself last November: Firstly, the standalone Asia division was abolished and reallocated to the business units, i.e. in global wealth management, investment banking and asset management. Global wealth management got a new boss, CS returnee Francesco de Ferrari.
Second, she shifted some capital, and in line with her risk appetite, from investment banking to wealth management; the new head of risk David Wildermuth, who also came from Goldman Sachs, plays an important role. Third, CS centralized control of its technology and other support services into a single entity under new boss Joanne Hannaford, who the bank had poached from competitor Goldman Sachs.
These structures have been in place since November and now the strategy needs to be implemented. De Ferrari, Wildermuth and Hannaford, together with Compliance Chief Rafael Lopez Lorenzo, who has been in office since October 2021, made their first big appearance in front of the assembled investor community.
A united leadership team
Atmospheric is noticeable. The main message of the hapless short-term president of CS, António Horta Osório, whose departure from the bank has survived: “Every bank employee is a risk manager at heart”. The message appeared several times in the presentations.
The efforts of the top management to present themselves to investors as a unified team were also almost tangible; to show that wealth management, technology and risk management work together. The effort is understandable. In 2021, still under the then President Horta Osório, there was a bad atmosphere at the top of the bank. CS made a name for itself with indiscretions that could only have been leaked by high-ranking insiders.
Also interesting are the indications as to how CS intends to continue walking the tightrope between risk awareness, cost efficiency and growth ambitions. As I said: The core business is currently paralyzed because of the markets and the in-house scandals, but also because the bank wants to avoid a second case of Archegos and has acted rather cautiously in some places.
Head of Risk Wildermuth and Head of Compliance Lopez Lorenzo confidently emphasized that their areas are growing. Compliance will cost around 500 million dollars in 2022, compared to 370 million in 2019. These aren’t usually the kind of growth numbers that a bank rubs in their investors’ noses.
At the same time, however, Lopez Lorenzo also spoke of efficiency measures and that around 450 employees from his compliance department, the second line of defense against excessive risks, should move to the first line, i.e. to the front to the business units. Wildermuth compared the current situation with the time after the 2008 financial crisis; in turn, there would be an opportunity to be more risk-averse again. According to Wildermuth, the pendulum is swinging back in the other direction (after the sharp reduction in risks).
Joanne Hannaford explained what CS can gain from centralizing its highly fragmented IT systems, a key strategic objective. Also interesting was her comment that CS was not one of the fastest in some areas, such as the switch to the cloud, but could benefit from it. Put simply, the bank can now buy mature solutions off the shelf.
More than China
Francesco De Ferrari emphasized the advantages of CS in wealth management, which will be even more at the center of the bank’s strategy in the future: Above all, the size – after UBS, CS is number two worldwide in this business, if you count the USA excludes – and its strength as an investment house and in the lending business. These pillars are to be expanded further. De Ferrari also emphasized the strong geographic diversification of the bank: CS employs almost 1,000 people in Brazil and has also had a presence in the rapidly growing Gulf States for decades.
In Asia, in addition to China, markets such as India and Indonesia are in focus; the country with the fourth largest population in the world, whose importance is often underestimated in Europe. In Indonesia, the big bank also supported its customers in difficult times, says former Asia boss De Ferrari, for example during the Asian crisis of 1997/98, which led to nationwide riots and the fall of the Suharto regime. The customers thanked the bank today, because the bank itself is in trouble, with their loyalty.
Russia hardly played a role, one can conclude, not by shifting its activities from autocracies to democracies, but by even further geographic diversification. In addition, as De Ferrari indicated, the bank is likely to withdraw from other small markets, as it recently did in sub-Saharan Africa.
The new top management often hit the right note this Tuesday. Whether CS will succeed in turning around in and after the much-vaunted “transition year 2022” remains highly uncertain and is not solely in the hands of the management.
If, for example, supply bottlenecks persist in Asia, the recession sets in in the west and the markets continue to weaken in the second half of the year; and if the profits at CS are still a long time coming, the consensus in management could soon be over and the position of CEO Thomas Gottstein could begin to falter again. Investors will not forget that, even after today’s Tuesday.