Reassuring internally and externally.
This is the mission that Ulrich Körner set for himself at a time when Credit Suisse, founded in 1856, is going through one of the most difficult and painful periods in its history.
Körner, who took over as CEO last August, wants to give the impression that all is well, that the boat is sailing smoothly, despite the fact that the waters are threatening.
But sometimes this exercise turns into a tough balancing act.
In his last memo sent to employees on Oct. 7, the chief executive officer tries to portray the image of a calm captain, a captain who is in control of his boat.
The objective is clear: to allay the worries and fears of employees who are concerned about their future and that of their bank, around which the wildest rumors are circulating.
“As I wrote to you last Friday, we have seen continued heightened focus around the bank, which will likely remain until we announce our strategy for the new Credit Suisse at the end of October,” Körner wrote in the document seen by TheStreet.
“I can assure you that the Executive Board is making good progress in finalizing the strategic review. I was particularly pleased to welcome Dixit Joshi as our new chief financial officer on Monday. As one of his first actions, Dixit initiated a debt buyback of up to CHF 3billion on Friday with the aim of optimizing our balance sheet and reducing our cost.”
Körner then turns to other topics, including the Credit Suisse Sustainability Week, which, he says, brought together leaders from different industries, including clients, to talk about sustainability.
He then congratulates an investment banking team on a deal.
The CEO also prepared talking points for employees when faced with customer questions about the bank’s position. There is a link in his email that employees must click on to access the materials.
One of the talking points is to say that Credit Suisse is sufficiently capitalized to withstand the jolts of the markets.
“Out of our total loan book of CHF 287 bn at the end of 2022, CHF 161 bn or 56% relates to consumers of which the majority is mortgages,” the company said in the materials. “Over the last 7 years, we have strengthened our balance sheet and capital ratios.”
In the documents, the bank invites employees to also mention the fact that the rating agency Standard & Poor’s has confirmed its long and short-term credit rating.
The problem is that, for investors who remember the 2008 financial crisis, the three big rating agencies – Standard & Poor’s Moody’s and Fitch – had given AAA ratings to securities whose credit quality was far lower. A significant number of subprime securities, rated highly in the years preceding the crash, have been downgraded, often significantly; many of them later defaulted.
Another Restructuring Plan
Credit Suisse had a little respite in the stock market during the last sessions. Its shares gained nearly 24% last week, to end at 4.85 Swiss francs. They are still way below their level of 9.487 Swiss francs at the start of 2022. There is a long way to go to erase their year-to-date losses.
Everything rests on the restructuring plan that the bank will present on Oct. 27. This plan should unveil the “New Credit Suisse” as Körner already calls it. The bank could bring in an outside investor to inject money into a spinoff of its advisory and investment banking businesses, according to Bloomberg.
For many insiders who talked to TheStreet, there is a lot of skepticism over another restructuring plan. The concern is that Credit Suisse has implemented significant strategy changes in the past, including the one under former CEO Tidjane Thiam’s leadership in 2015, to focus on private banking and wealth management. Yet, the bank, which was able to emerge relatively unscathed from the 2008 financial crisis, has failed to produce strong results and to convince the markets, with its share price losing more than 80% of its value in a steady decline since 2009.
“It needs to undertake a decisive restructuring of its investment bank business, rather than another piecemeal restructuring similar to what has been done several times over the last decade,” says JPMorgan Chase analyst Kian Abouhossein in a research note on Oct. 6.
Abouhossein says Credit Suisse should focus on wealth management and should consider any option that would avoid a significant dilutive capital increase.
“We see $15 billion as minimum value today for Credit Suisse,” the analyst said.
The bank’s market value was 11.71 billion Swiss francs ($11.76 billion) at the close of trading on Oct. 7.
Credit Suisse is a universal bank, which offers traditional services and products to consumers, mainly in Switzerland. But the establishment is known globally for its investment banking activities – trading deals such as mergers and acquisitions, bond offerings, IPOs, etc. – and wealth management operations.
It is the investment bank which put the firm in difficulties, even if it was, for a very long time, one of the big sources of revenue and profits for Credit Suisse. The mistakes of the investment bank have plunged Credit Suisse into numerous successive scandals in recent years, including the one around Archegos Capital Management.