As Tidjane Thiam leaves, Credit Suisse has much to be grateful for

Credit Suisse’s Tidjane Thiam and Urs Rohner

Yesterday evening the board of directors of Credit Suisse unanimously accepted the resignation of chief executive Tidjane Thiam. The official announcement does not make clear whether or not they were also unanimous in asking him to resign, though that is certainly the implication.

Lead independent director Severin Schwan says they were also unanimous in reaffirming support for chairman Urs Rohner to complete his term and stay on until April 2021.

The rumbling row over the hiring of private detectives last year to follow former head of International Wealth Management Iqbal Khan during his gardening leave after quitting for UBS had boiled down in the last week to this: would Rohner oust his chief executive or would the chairman himself have to stand down for daring to suggest such a course?

After all, Thiam was the outsider Rohner had turned to to save Credit Suisse after it had come through the financial crisis in good health but then drifted into paying its traders far too much to take on the wrong sorts of risks and becoming under-capitalized because this failed to generate retained earnings.

It also distracted resources and management attention away from the bank’s true advantages in wealth management.

Without Thiam, Credit Suisse shareholders could have suffered a fate similar to those of Deutsche Bank.

One year

A year has passed since the end of Thiam’s restructuring: a year in which the results of it have come to be taken for granted.

The Swiss financial establishment has been horrified by tales of Thiam and Khan falling out over rows about clipping the hedge between their luxury properties and Jason Bourne-like chases and confrontations in the streets of Zurich.

 Thiam’s departure is ironic because Rohner had spent a year trying to persuade him to join Credit Suisse.

“The chairman [Urs Rohner] tells me we had 19 meetings,” Thiam told Euromoney during a string of interviews in mid 2018, when the markets were only just starting to realize that his turnaround plan was going to work.

Thiam had taken a risk talking to Rohner at all.

“And then the more I looked at it, the more challenges appeared,” Thiam said. “It would be tough to address lack of growth, too much risk, costs being too high, lack of capital and very significant legacy issues each on their own. But to deal with all of them in parallel looked like too much. I actually said no twice.”

By the end of 2018, however, Thiam had delivered. He had cut costs by a quarter from 2015, while losing just 10% of revenues. And he had doubled adjusted pre-tax income from SFr2.1 billion ($2.2 billion) to SFr4.2 billion.

Shareholders weren’t celebrating this morning.

It remains to be seen if the shareholders who so strongly backed Thiam share that gratitude or will now sell out 

Hat tip to the Financial Times for its excellent reporting on the various large shareholders of the bank expressing fierce support for Thiam this week and suggesting that, in a choice between the two men, Rohner should be the one to go.

But Rohner stays. Thiam leaves, expressing regret for the spying on former colleagues “which disturbed Credit Suisse and caused anxiety and hurt”, while still denying any knowledge of it and by extension any responsibility for it.

Thiam’s job had been on the line since just before Christmas when the Swiss Financial Market Supervisory Authority (Finma) announced that it was stepping up its investigations into these “observation activities” and had appointed an independent auditor to focus on the resulting corporate governance questions.

Without setting a timetable, Finma hinted that this investigation might take months.

One has to wonder whether Finma or Rohner independently or together had discovered anything new. The fact that Thiam stays on to deliver full year 2019 results next week suggests maybe not and that these results may be perfectly respectable.

There is some irony that hopes for above-consensus full-year results are now focused on the markets businesses, while longer-term concerns centre on the investment bank.

Finding the answer

Thiam is a very smart strategic thinker.

One of his key observations to Euromoney was that when a company gets into trouble, all the answers are usually within it. The people inside the bank know what needs to be done: the chief executive needs to identify the people with the answers and work with them.

As he pivoted the bank towards wealth management and to Asia and established a more complicated-looking divisional reporting structure, it was a point of pride to Thiam that his restructuring plan was carried out by an executive management team of long-standing insiders.

Ironically, this may have made it easier for the chairman who spent so long persuading the outsider to join Credit Suisse to now cast him out once again.

Thomas Gottstein, Credit Suisse

The appointment of Thomas Gottstein, head of the Swiss Universal Bank and a 20-year veteran of Credit Suisse, as the new chief executive does not raise the prospect of any imminent radical departure from Thiam’s inherently sensible strategy of taking capital away from low-return businesses with poor growth prospects and allocating it instead to higher-returning ones, with better growth where the bank has inherent advantages.

Eric Varvel, global head of the asset management business, was being touted as the other internal candidate.

Gottstein is a soldier. When Thiam announced that the domestic Swiss Universal Bank would be prepared for an IPO to raise capital in October 2015, the insurance part of Thiam’s brain was looking for an option that he didn’t really want to use.

Thiam later told Gottstein he wouldn’t become the chief executive of a separately listed business after all because Gottstein had done such a good job that by 2017 Credit Suisse had decided to keep it.

Gottstein didn’t complain even when he had to tour regional management to explain that the dream of running a public company was over.

He agreed that not going ahead with the IPO was the right decision. He got on with the job at hand.

In a domestic market hit by negative rates and modest economic and loan growth, he dragged full year adjusted pre-tax income up from around SFr1.5 billion in 2015 to over SFr2.1 billion three years later. He pulled the cost-to-income ratio down from 68% to 58% within three years.

He is a roll-up-the-sleeves kind of executive more than a visionary thinker or master strategist: a safe pair of hands for now, whose elevation may not raise too many hackles among colleagues left to run their own business divisions.

Gottstein has experience in private banking and investment banking, though less in emerging markets.

Gratitude

In the end, there was a great deal of gratitude in the room. The chairman was grateful to Gottstein for taking on the job of chief executive: Gottstein was grateful to the board for offering it. Thiam thanked his former colleagues for their support and said simply: “I will be for ever grateful’.

It remains to be seen if the shareholders who so strongly backed Thiam share that gratitude or will now sell out – and what other consequences Finma may yet identify from this extraordinary episode.

But probably the person with most reason to be grateful is Rohner.