Credit Suisse rebuilding gets off to painful start

The question is how new CEO Tidjane Thiam will rebuild the bank he has spent the first part of his tenure stripping down Keystone

It has not been a good start for Credit Suisse Chief Executive Tidjane Thiam. Six months after he took on the job, he has announced 4,000 job cuts, CHF3.8 billion ($3.7 billion) in write downs and a CHF2.9 billion loss for 2015.

Thiam has used a heavy duty broom to sweep out the bank’s past problems. In October he announced that Credit Suisse’s United States private banking business would wind down with staff being given the opportunity to move to Wells Fargo. This followed a $2.8 billion fine that Credit Suisse had to pay in 2014 to settle a US tax evasion dispute.

The botched acquisition of Donaldson, Lufkin & Jenrette in 2000 has now been recognised with a CHF3.8 billion “goodwill impairment” write down as Credit Suisse admitted on Thursday that they had paid far too much for the US investment bank.

The 4,000 job cuts, which will now move at a faster pace than when they were first talked about in October, will focus heavily on Credit Suisse’s investment banking operations in London as well as Switzerland.

The acid test for Thiam is how well he will rebuild the enterprise that he has spent the first part of his tenure stripping down.

For some time the markets had been crying out for the type of restructuring that Thiam’s predecessor, Brady Dougan (a US investment banker by trade), had resisted during his tenure. “The new strategy is to have a small investment bank,” Thiam said. However, Credit Suisse shares plunged on Thursday’s announcement and the move was met with some scepticism.

“The Swiss bank resumes its long-lasting tradition of disappointing the markets. In fact, it has been nine years that Credit Suisse did not post an annual earning that surpasses the market’s expectation,” analyst Laurent Bakhtiari, of the Geneva-based IG Bank, said in a note.

“Overall, even if we are still in a ‘wait-and-see’ period regarding this strategy shift…we are starting to lean towards disappointment.”

To make matters worse, cross town rival UBS delivered stellar 2015 results on Tuesday. 

Seeing the end game

Thiam struck a more positive, and defiant, chord when talking to journalists on Thursday. “The biggest danger for this company, at this point in time, is to yield to short-termism,” he said in response to a question on plummeting share prices. “We have a long-term strategy and nothing that has happened today will change that. Judge what we are doing in two or three years. We must not lose our nerve.”

Part of that strategy involves cutting jobs. Despite failing to impress the markets with results since the 2008 financial crisis, headcount has remained roughly the same at Credit Suisse (see graph), hovering just below 50,000. By contrast, UBS (admittedly more heavily burned by the mortgage securities crash) has seen numbers fall nearly a quarter since 2008.

The remaining staff at Credit Suisse will be redistributed around the world. Some 1,600 Swiss-based employees will leave the company by the end of 2018 and more will vacate its London premises. Credit Suisse is concentrating most of its hiring in Asia where the bank will increase its client relationship managers from 500 to 800 by the end of 2018.

The intent is clear: pare back in Europe and the US and head east.

This comes at a time when previously rampant Chinese economic growth has been slowing down. But Thiam is convinced that Asia remains a prime market in the long-term, citing falling oil prices as a large part of the cause behind “jittery” markets.

Despite saying that most Swiss job cuts will be taken up by natural attrition, the Swiss bank personnel association said staff were concerned at a lack of transparency over the losses.

“The fear is that the job cuts won’t – as was originally announced – be absorbed with natural fluctuations and that there will be mass redundancies,” the bank union said in a statementExternal link.

Changes at Credit Suisse

Tidjane Thiam took over as Chief Executive of Credit Suisse on in July last year. In October he announced strategic changes to the bank’s structure. At the same time, Credit Suisse also set about raising CHF6 billion in extra capital to boost its balance sheet.

Thiam told investors in October that he would be shrinking Credit Suisse’s investment banking activities, concentrating more on Asia and would wind down private banking operations in the US.

As a result of the changes, 1,600 staff lay-offs in Switzerland were announced along with others worldwide. On February 4, the figure of 4,000 total job cuts was announced along with news that the lay-off process would be sped up. The target was to achieve CHF3.5 billion in cost savings by the end of 2018.

The bank made a CHF2.94 billion loss in 2015 because of a series of one-off charges. This included CHF3.8 billion of goodwill impairment relating to its 2000 acquisition of US investment bank Donaldson, Lufkin & Jenrette, CHF355 in restructuring charges and an increase to CHF821 million to cover potential litigation costs. Thiam said that a sizeable chunk of litigation provisions related to an action by a US individual, but he could not give any further details.