Last year Tidjane Thiam took over as chief executive of Swiss banking giant Credit Suisse. His mission? To breathe new life into the share price with a convincing strategy – just as he did at British insurer Prudential.
But so far there have only been setbacks. The strategy he announced last October disappointed markets – and a fourth quarter loss of more than 5.8 billion Swiss francs, or about $5.95 billion, has horrified many. Since October, Credit Suisse stock has fallen some 40 percent.
Now Mr. Thiam is trying again. Instead of cutting net costs by 2 billion Swiss francs by 2018, he aims to chop 3 billion. And 2,000 more jobs will be eliminated, raising the total to 6,000.
Again, most of the austerity measures will fall on the investment banking division. Last October Mr. Thiam announced that the balance should contain $83 billion to $85 billion in risk-weighted assets. Now the goal is down to $60 billion.
We are faced with two big challenges — our cost base, as well as our size in global markets. Tidjane Thiam, chief executive at Credit Suisse
“We are faced with two big challenges — our cost base, as well as our size in global markets,” Mr. Thiam said.
The investment banking division is slated to give up additional commercial areas, such as the business in non-performing loans.
The latest cuts at Credit Suisse also affect Deutsche Bank, where co-chief John Cryan will be under added pressure to do the same. “I'm sure that Mr. Cryan is also working on additional cuts,” said Christopher Wheeler from Atlantic Equities.
The old strategies of Deutsche Bank and Credit Suisse have been rendered obsolete by market turbulence, explained an analyst at a large bank.
Worries about a crash in China, plunging oil prices and a new economic crisis are slowing investment banks around the world. At Credit Suisse, trade volume in bonds fell 40 to 45 percent in the first quarter. Even Goldman Sachs has announced retrenchments in this showcase area.
Mr. Thiam conceded that Zurich-based Credit Suisse would register a loss in the first quarter, because of declines in bond trading, added restructuring costs and write-downs of illiquid trading positions. He didn’t give a specific figure.
For years now, Credit Suisse has been paring investment banking, which has become the target of increasing criticism. After the new round of cuts announced this week, the unit will have a balance sheet total comparable to another big Swiss financial firm, UBS.
At the end of 2015, the investment bank at UBS was holding risk-weighted assets of 63 billion Swiss francs, or about $65 billion. According to the annual report, adjustments could cause this figure to rise to $87 billion in the mid-term. But the balance sheet of the bank’s liquidation unit is still excluded.
According to Mr. Thiam, the investment bank at Credit Suisse will be valued in the future at a converted 70 to 80 billion Swiss francs. Sixty billion Swiss francs are in global markets, and two-thirds of that consists of bond transactions.
Had Mr. Thiam announced a retrenchment to this level last October, he would probably have been applauded, just as UBS was in fall 2012 when it announced a shift in strategy.
But Mr. Thiam’s second try this week got only a lukewarm response, with the share price up 2 percent. “The impression remains that the restructuring measures are a permanent construction site,” said Andreas Brun of Zurich Cantonal Bank.
In addition to the step-by-step cuts, there are other problems. Write-downs on illiquid bond positions caused losses in the millions. In mid-March, these positions still had a volume of $2.4 billion.
“When we presented our strategy plan in October, neither I nor chief financial officer David Mathers had knowledge of these holdings,” said Mr. Thiam.
He said the bank had replaced some personnel and increased monitoring. According to its media office, the assets first came to light in the course of restructuring, due to better reporting. But doubt remains about whether the bank really has a firm grip on its balance sheet.
The bank already reduced its bonus pool for 2015 by 36 percent. Mr. Thiam himself ordered a 40 percent cut in his own bonus. But a report on pay scheduled for Thursday is expected to cause more commotion. That’s when Credit Suisse will reveal bonus obligations it took over from Prudential, which are owed to Mr. Thiam.
More negative headlines about the bank seem inevitable, then.
Holger Alich is Handelblatt’s Switzerland correspondent, covering the financial industry. To contact the author: [email protected].