Credit Suisse Tries A New CEO After $1.7 Billion Loss
Veteran banker Ulrich Koerner to replace Thomas Gottstein as chief executive officer.
(Bloomberg) -- Credit Suisse Group AG replaced its embattled chief executive officer and said it would embark on a new turnaround plan just nine months after the last one, as the Swiss bank indicated it aims to slash the size of its investment bank in the face of mounting losses.
The firm tapped asset-management head Ulrich Koerner to be CEO starting next week, replacing Thomas Gottstein, who is resigning after a two-year tenure marked by scandal and huge losses. The firm, which posted a larger-than-expected 1.59 billion franc ($1.65 billion) second quarter loss, said the review will include cutting at least another 1 billion francs of costs and evaluating its securitized products trading unit.
Chairman Axel Lehmann is seeking to steer the bank back to profitability -- and stability -- after scandals such as the blow-up of Archegos Capital Management and Greensill Capital eroded investor confidence, weakened key businesses, and prompted an exodus of talent. The Swiss lender has changed its entire executive team and half its board of directors in the past 18 months in an effort to move past the crises.
“Since Mr Gottstein was appointed CEO in Feb 2020, Credit Suisse shares have declined by over 60%, materially underperforming peers.,” Citigroup analysts wrote in a note to investors. “While Mr Gottstein inherited a number of problems, the way in which the firm reacted to these and the subsequent strategy adopted has left the bank in a weaker position with significant franchise erosion across all divisions, and most notably the investment bank.”
The share decline under Gottstein is the worst among major global banks in that period, with the stock still trading near record lows. The cost of insuring the firm’s bonds against default soared to the highest since 2009 earlier this month.
The stock fluctuated between losses and gains in Zurich trading, and was down 0.4% as of 11:34 a.m.
The firm has spent the past three years mired in scandals -- starting with a spying fiasco that led to Gottstein taking the reins from Tidjane Thiam -- that has left it floundering at a time when many rivals have seized on active markets to thrive. Now with inflation fears and the war in Ukraine spurring more turbulence, Credit Suisse losses have totaled almost 4 billion francs in the past three quarters.
The bank is “considering options for fundamentally reshaping” the investment bank, including attracting third-party capital for a securitized products trading business that’s typically profitable but uses about a quarter of the division’s capital. The firm said it wants an investment bank that uses less capital and is more tied to its wealth franchise, indicating possible deeper cuts than it laid out in a new strategy in November.
The investment bank’s revenue fell 55% in the second quarter, driven by a slump in trading while rivals saw gains and $245 million in losses from its leveraged finance business. The firm guided that the pain at the investment bank is far from over, with third-quarter trading marked by continued weakness in client activity and another expected loss in that area. The firm named David Miller and Michael Ebert as co-heads to oversee banking and markets, saying current investment bank chief Christian Meissner will focus on transforming the business.
The bank aims to cut its overall cost base to 15.5 billion francs in the medium term, well below the target of 16.5 billion to 17 billion francs set out late last year.
Koerner, 59, has spent more than 20 years at the two largest Swiss firms. He spent over a decade at Credit Suisse before moving in 2009 to crosstown rival UBS Group AG, where he worked with Lehmann. Koerner rejoined Zurich-based Credit Suisse last year after losing out in a management reshuffle at UBS in 2019.
He’s now set to go from running the smallest of Credit Suisse’s four main units to trying to regain investor confidence, something Gottstein has struggled to do since a series of scandals. The company’s board held early-stage talks about replacing Gottstein as far back as May, Bloomberg News reported at the time.
“He’s one of the very few executives in the whole industry that can deliver,” Lehmann said of Koerner in a Bloomberg Television interview. “Ulrich has experiences to transform and to build large businesses. He’s ideally positioned.”
Koerner was brought in to Credit Suisse to replace Eric Varvel, ousted from the asset-management chief role over the Greensill scandal. Koerner took over a unit that was reeling from that ordeal, which saw the firm freeze $10 billion of funds that it had marketed to clients as among its safest products. It’s still in the process of trying to recover customer money.
Credit Suisse’s second quarter loss was driven by declines at the investment bank, trading businesses and higher litigation expenses. The bank saw net outflows of 7.7 billion francs as clients traded less and cut risk in response to gyrating equity markets.
Other key figures from the second-quarter report:
- Wealth management adjusted pretax profit of 114 million francs, outflows of 1.8 billion francs
- CET1 ratio 13.5%
- Net revenue 3.645 billion francs
- Swiss Bank pretax profit 402 million francs vs 394.8 million franc estimate
- Asset management pretax profit 30 million francs vs 51 million franc estimate
(Adds Chairman, analyst quotes)
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.