Credit Suisse Holding On, Just Barely

The CEO and chairman of the venerable Swiss bank are fighting for their life at an annual meeting with shareholders this week.
Quelle: dpa
Credit Suisse CEO Tidjane Thiam, left, and Chairman Urs Rohner are likely to be in for a rocky ride at Friday's annual meeting.
(Source: dpa)

Call it a Swiss version of Groundhog Day: The Sechseläuten festival is one of the most important holidays in the Zurich city calendar. The traditional spring event marks the end of winter and culminates in the burning of a giant snowman at the stake. The quicker the snowman’s head explodes, the better the summer to come – or so the legend goes.

The festival parade to the central Sechseläutenplatz is also an opportunity for Zurich’s celebrities to make a public appearance. In a country where banks are revered, it wasn’t altogether surprising to see Credit Suisse Chief Executive Tidjane Thiam and Chairman Urs Rohner joining in the fun, showing their affinity with the local traditions.

Or perhaps the pair had come to support the poor snowman, having themselves been the victim of something of a witch hunt in the past week. 

Shareholders and the media are out for blood: Last weekend, the Neue Zürcher Zeitung, the most important newspaper in the Swiss financial capital, accused the bank’s leadership of a “self-indulgent culture.” Those were harsh words for the heads of an institution that is as intertwined with the Swiss financial sector as the banking secrecy that threatens to be its undoing.

The Zurich media elites aren’t the only ones left wondering whether the two top executives are still viable. With investors also starting to ask questions, an annual shareholders' meeting Friday could turn into a showdown.

Confidence in the bank has reached a low point. Vincent Kaufmann, Ethos CEO

Credit Suisse has been transformed from a once-proud bank into a scandal-ridden institution. A Dutch-led investigation into thousands of suspicious accounts, revealed last month, does little to alter the perception of Switzerland being one of the world’s biggest tax havens. For Credit Suisse, it came just three years after the bank admitted to helping thousands of its US clients evade tax, earning it a total fine of $2.6 billion (€2.4 billion).

The bank finds itself often compared to Germany's Deutsche Bank, which has faced tens of billions in legal settlements in fines over the past few years and at times even struggled to convince investors it has a viable future. But while Deutsche has managed to bury the hatchet on its biggest legal disputes and is slowly turning the corner, Credit Suisse is still in the thick of crisis, its shares only slightly above an all-time summer low (see graphic below).

“Confidence in the bank has reached a low point,” Vincent Kaufmann, CEO of the Ethos investment foundation, told Handelsblatt. The Geneva-based foundation advises 3 to 4 percent of Credit Suisse shareholders, including pension funds, on their voting rights. Previously, Ethos had openly called for the dismissal of Mr. Rohner.

Indeed almost every discussion with important financial figures in the city of Zurich these days comes back to one topic: How much longer will the two men last? Some are reminded of the personnel drama at UBS, Credit Suisse’s biggest competitor, during the financial crisis. In 2008, then UBS Chairman Marcel Ospel referred to himself as “part of the solution.” In the end, bank regulators removed him from his post.

So how have we got to this point? When Tidjane Thiam was named chief executive officer of the ailing bank in the summer of 2015, his goal was to steer it in a completely new direction. He wanted to strengthen equity capital and provide the bank with more robust defenses against crises.

Mr. Thiam had previously earned praise and millions for his restructuring of British insurer Prudential. In Zurich, however, he was greeted with a strong headwind from day one. His plans were unpopular, despite the fact that the bank seemed to be making progress towards a more sustainable future.

However, Credit Suisse has failed to emerge fully from its crisis. The share price reached a record low last summer, partly because Mr. Thiam had diluted the value of share certificates through a capital increase. The current price, at around 15 Swiss francs, is still more than a third below its level three years ago.

On Wednesday this week, the bank shelved plans to list part of its domestic banking business. Instead Credit Suisse said it would attempt to raise another 4 billion Swiss francs ($4 billion) from selling new shares, as it continues to try to appease regulators and allay fears about its capital reserves.

Credit Suisse is one of the most poorly capitalized banks in Europe. The equity ratio, a measure of strength for large banks, is also about two percentage points below the desired value. The bank's business in Asia, selected by Mr. Thiam as a growth market when he came into office, is making no headway. This is also due to extremely low interest rates, which are currently making it difficult for many financial institutions to generate income.

The bank urgently needs the income to fix its balance sheet and pay for a costly restructuring program, in which it plans to lay off at least 6,000 employees. As a result, Mr. Thiam and Mr. Rohner have come under sharp criticism, not only from interest groups outside the company but also from within their own workforce.

The numbers are not exactly helping the two top executives. The bank posted losses in both 2015 and 2016, totaling 5.7 billion Swiss francs over the two years. On Wednesday, Mr. Thiam was at least able to announce that the bank had managed to generate a surplus of almost 600 million Swiss francs in the first quarter of the year, close to 200 million francs more than expected.

The two top executives are clearly struggling with their own strategy for the bank.

At the beginning of the year, Mr. Thiam and Mr. Rohner opened themselves up to even more criticism. The top managers wanted to pay themselves roughly 78 million Swiss francs for performance-related remuneration. There were protests from many quarters, including major investors.

Voting consultants such as Ethos, Glass Lewis and ISS, which together represent more than a third of Credit Suisse’s shareholders, rejected the bonus rules and openly challenged Mr. Rohner’s move. Shortly before Easter, the bank offered to reduce the size of the bonus pool by around 60 percent, to 48 million Swiss francs.

For some, this is still too much. Glass Lewis says the reduction is “too little and too late.” According to the firm, the fact that a shareholders’ revolt was needed to convince the company to relent only two weeks before the annual meeting showed that the board of directors is paying too little attention to the interests of shareholders.

At the same time, the two top executives are clearly struggling with their own strategy for the bank. The U-turn over an IPO for its domestic unit is a case in point. Back in October 2015, Mr. Rohner had promised an initial public offering of the Switzerland business would “strengthen the value of Credit Suisse as a whole.” Even Mr. Kaufmann of Ethos at the time described the step as an “interesting part of the corporate strategy.”

Mr. Rohner and Mr. Thiame will have to do a better job of getting their stories straight on Friday if they hope to survive.


Ozan Demircan is a correspondent in Switzerland. To contact the author: [email protected]