Credit Suisse Boss’s Garden Dispute Is a Very Bad Look

(Bloomberg Opinion) -- The feud at the top of Credit Suisse Group AG and a spying drama have revealed a dark side to global finance. The Swiss banking giant would like to move on from the episodes that have embroiled senior managers including Chief Executive Officer Tidjane Thiam and Iqbal Khan, a former senior lieutenant. But there are too many lingering questions.

A hastily commissioned company report into its snooping on Khan, Credit Suisse’s former head of wealth management, offered some clarity after its publication on Tuesday. And the immediate ousting of the bank’s chief operating officer, Pierre-Olivier Bouee, offers up the necessary managerial sacrifice. Yet the details of what went on are troubling for those who care about how the lender is run. For Thiam and his chairman, Urs Rohner, the damage could be lasting.

The backdrop was Khan’s defection to UBS Group AG and his former employer’s subsequent decision to have him followed to make sure he didn’t poach any other talent — a decision that blew up when Khan had an altercation with those hired to trail him. But it was revealed subsequently that Thiam and Khan had been engaged in a months-long personal feud, revelations that pushed the staid world of Swiss banking straight into the newspaper gossip columns.

For a firm whose discretion and confidentiality are key selling points to wealthy account holders, the circumstances around Khan's defection are a huge embarrassment. In Credit Suisse’s own words on Tuesday, they have caused severe reputational damage. Press reports have ranged from a row between Thiam and Khan at a private party to the bust-up between the latter and the private investigators on the streets of Zurich. In a tragic twist, it has emerged that a security consultant involved in the surveillance operation took his own life last week.

Credit Suisse’s board is eager to set the record straight and hold those responsible accountable. But the report’s conclusions aren’t entirely satisfying.

The report prepared for Credit Suisse by an external law firm, Homburger, concluded that Bouee, a long-time ally of Thiam, was solely responsible for ordering the spying. (There was no evidence that Thiam knew about the surveillance). Yet private communications were only partly available to the law firm because some messages between Bouee and his security chief (who also resigned) had been deleted.

Neither did the investigating firm find any written instructions for the monitoring of Khan. So the conclusion is that Bouee engaged on his own along with the security boss in a high-risk operation to monitor Khan in the event he might poach staff and clients. There was no evidence found that Khan was doing this. Bouee did not discuss his actions with the CEO, nor any other member of the Credit Suisse board.

This begs another question, however: Why was someone in Bouee’s position able to act alone on such a sensitive subject, and without written instructions? Shouldn’t the CEO and chairman have been made aware, and then been allowed the chance to nix the spying operation? It doesn’t paint a picture of a senior team with a grip on what’s going on.

Rohner on Tuesday defended Thiam and the bank. He said he didn’t believe there was a cultural problem. John Tiner, head of the lender’s audit committee, said there was no reason to think Thiam wasn’t on top of his organization. “This was a highly irregular act,” Tiner added.

Possibly, though Thiam cannot distance himself from the personal and professional rift with Khan that ultimately saw Credit Suisse lose a potential future CEO to its No. 1 rival. Rohner admitted he had to manage the two men’s relationship after they argued about their adjoining gardens (Thiam and Khan happen to be neighbors). That will do little to instill confidence in the CEO.

Before Tuesday’s report, top shareholders rallied to Thiam’s defence and they are keen to contain the damage. Credit Suisse is only just beginning to show that a strategic overhaul implemented by Thiam is working. The executive has pushed through a restructuring that mirrors what UBS did years earlier: A retreat from investment banking and a pivot to wealth management.

The promised improvement in profitability has arrived finally. The bank is aiming for a 10 percent return on tangible equity in 2019 assuming revenue remains flat, compared with slightly less than 6 percent in 2018. Still, the shares have lost about half of their value since Thiam took over, a worse performance than the benchmark STOXX 600 Banks Index. And that return to growth after a flat 2018 is being challenged by geopolitical risks and negative interest rates.

Fierce competition (as evidenced by the Khan spying) and clients’ changing appetite for where they stash their cash are complicating a wealth management business that had seemed like a slam dunk. Cutting costs, something Thiam has been very good at, may have been the easy part.

Now he’ll need to navigate tricky waters with a cloud over his leadership. The scenes that have gripped Swiss finance won’t be easily forgotten.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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