Man overboard – Tidjane Thiam is forced out of Credit Suisse after a spying fiasco | Finance and economics
IN FOUR AND a half years as the chief executive of Credit Suisse, Tidjane Thiam had shown himself to be adept at weathering heavy storms. But on February 7th he was swept overboard by a spying scandal that has battered Switzerland’s second-biggest bank for months. Mr Thiam, who denies any knowledge of the surveillance of two former executives, will step down on February 14th, after presenting fourth-quarter results the previous day. Those figures will show a bank in very different, and far better, shape than the one he inherited in July 2015—though still with a lot of work to do.
In mid-September Iqbal Khan, who had quit as head of Credit Suisse’s international wealth-management division after falling out with Mr Thiam, realised that he was being followed in central Zurich. An investigation for the bank found that Mr Khan had indeed been under surveillance, on the instructions of Pierre-Olivier Bouée, the chief operating officer. No link to Mr Thiam was found. Mr Bouée, who had worked with his boss at Prudential and Aviva, two British insurers, and McKinsey before joining him at Credit Suisse, resigned. But worse was to come. In December, after a report in the Swiss press, the bank confessed to having had Peter Goerke, its former head of human resources, trailed too. Again, it blamed Mr Bouée and cleared Mr Thiam.
Despite Mr Thiam’s exoneration, the affair appears to have led to the bank’s board turning against him. Several investors, however, had backed Mr Thiam publicly, calling instead for Urs Rohner, the chairman, to go and even threatening to sue the bank if Mr Thiam got the push. (Some wonder whether Mr Rohner will survive, despite his earning the board’s explicit endorsement when Mr Thiam was forced out.) The share price opened 5% down on February 7th, perhaps in anticipation of selling by Mr Thiam’s backers, though it later recovered much of that ground.
If you look at Credit Suisse’s share price on Mr Thiam’s watch, you may wonder why any shareholders should have wanted him to stay. It is down by around half. Yet his record is rather better than that suggests. When he took over, the bank was in a precarious state. Its common equity tier 1 capital—its main bulwark against catastrophe—covered only 10.3% of risk-weighted assets (RWAs), less than at any of its peers. He raised SFr6bn ($6.3bn) in equity, only to see that wiped away by a write-down at its investment bank and trading losses. Settling charges that it had mis-sold American residential mortgage-backed securities before the financial crisis of 2007-09 drained even more cash. Another share sale, raising SFr4bn, followed in 2017. The share price still bears the marks left by those rights issues and write-downs.
As well as cleaning up the balance-sheet, Mr Thiam cut costs hard—operating costs have fallen by about one-sixth in the past three years—and restructured the bank. He shifted it away from risky trading and towards managing the wealth of the seriously rich. Overcapacity and new technology, Mr Thiam reasoned, meant that returns from trading would be thin as well as volatile. In 2015 the bank allocated about half of its RWAs to market-related activities; by last year their share was one-third. Helping billionaires to manage their fortunes looked a better bet. For one thing, their number was likely to keep growing, especially in Asia (to which Mr Thiam gave its own, dedicated division). For another, once you have their business they tend to stay. Drawing a parallel with insurance, Mr Thiam likened trading to one-off premiums and wealth management to repeated ones. Insurers prefer the latter, he said; so should banks. Assets under management have grown by SFr200bn since 2015, to SFr1.5trn.
Although this is starting to pay off, Credit Suisse is behind Mr Thiam’s original schedule. He had hoped that the bank would clock up a return on tangible equity (a standard measure of profitability) of 10% in 2019. Most investors regard that as par for banks: most big American lenders make it; most European ones, weighed down by ultra-low interest rates, low economic growth and bloated costs, do not. Credit Suisse is still short of respectability: in December it estimated it would score 8%-plus in 2019. It now expects to beat 10% this year.
At Credit Suisse Mr Thiam was an outsider in more ways than one. An engineer by training, he had never worked in a bank: besides his stints as an insurer and a consultant, he had been a government minister in his native Ivory Coast. He also held French citizenship and although he mused about one day getting a Swiss passport too, he did not always find Zurich’s banking circles comfortable.
His successor will be Thomas Gottstein, head of Credit Suisse’s universal bank in Switzerland, its biggest division. Mr Gottstein has spent more than 20 years with the firm. In appointing an insider, Credit Suisse is reverting to type. But that need not signify a change of course. Mr Thiam, after all, is staying to present the results. He put Mr Gottstein in charge of the Swiss bank, the biggest division; the Neue Zürcher Zeitung calls the new boss Mr Thiam’s “model pupil”. And although Mr Thiam overhauled the bank from top to bottom, he tended to promote from within (Mr Bouée was an exception). Mr Gottstein could do worse than follow his course.
Might he also do better? Only, perhaps, by getting bigger. Banking has increasingly become a game of scale, which—alongside their other troubles—European banks lack. Only Britain’s HSBC, which anyway makes most of its money in Asia, is in the world’s top eight by assets, according to the Banker. Credit Suisse just squeezes into the top 40. But big cross-border bank mergers in Europe are still as rare as hen’s teeth. Joining forces with an American firm (Morgan Stanley, some have suggested) may make more sense. That is anyway for another day. Mr Gottstein has a ship to steady.