Credit Suisse Problems Go Right to the Top

Scarred by damaging blowups in every one of its key businesses, Credit Suisse Group AG has cleaned out its top management ranks. Gone are several executives — including the risk chief — who had responsibility for fiascos such as the supply-chain funds linked to now bankrupt Greensill Capital and the ruinous stock gambles by Bill Hwang’s Archegos.

Still, betting the Swiss bank will soon turn the corner would be premature.

That the newish Chief Executive Officer Thomas Gottstein is holding managers accountable is encouraging. But the needed reset of this risk-embracing company’s ambitions — including a renewed commitment to creating value for investors, rather than destroying it — demands a serious improvement at the very top of the Swiss bank. Antonio Horta-Osorio, its first new chairman in a decade, starts this month. That’s only one small, overdue step in the right direction.

The board’s record over the past 18 months is dismal. It oversees one of the world’s biggest banks, yet it appears to have been regularly blindsided by a string of failures that will cost Credit Suisse billions of dollars and cause unquantifiable reputational damage. This points to troubling deficiencies in controls and supervision, the principal tasks of a corporate board. When something unpleasant is uncovered involving the firm’s senior managers, the directors often plead ignorance.

First there was the spying scandal of 2019, when the chief operating officer was apparently running a rogue operation following employees. The Swiss regulator is still probing that episode, which cost the COO and, ultimately, the former CEO Tidjane Thiam their jobs.

The series of unfortunate events persisted. Losses on loans and a big hedge-fund writedown in 2020 were followed by the implosion in March this year of Greensill, which supplied assets for Credit Suisse’s $10 billion of supply-chain funds. An internal probe by the board into the bank’s Greensill relationship has just started as it tries to recover $5 billion to return to clients.

Then there was Archegos. According to a Swiss news report, the Credit Suisse board’s risk committee — a six-strong group that’s meant to supervise risk-taking across the firm — wasn’t informed of the gargantuan bets the bank was financing for Archegos. (Credit Suisse declined to comment on the story.) The Archegos derivatives wagers backfired spectacularly in one of the biggest margin calls of all time. The Swiss lender’s financial hit from Hwang’s firm alone stands at $4.7 billion, almost twice what it earned last year.

Glass Lewis, a proxy adviser, says investors should vote against reelecting the head of risk to the Credit Suisse board at the annual general meeting. Regardless of whether that campaign is successful, having some fresh eyes look at the past mistakes and how to fix them would be useful. 

Some diversity on the board might help sharpen things up, too. Its governance and nominations body — a six-strong team responsible for picking the rest of the board, the CEO, evaluating the chairman and overseeing key appointments — is made up entirely of men. The two women joining the board this year, Clare Brady and Blythe Masters, are set to join the compensation committee.

Worryingly, recent promotions have been memorable for the wrong reasons. The heads of the investment bank and the executive risk chief, who were ousted this month, were only elevated to those roles in July.

Meanwhile, incoming chairman Horta-Osorio must familiarize himself quickly with the complex world of investment banking after a career spent almost exclusively in retail banking — he was formerly CEO of Lloyds Banking Group Plc. He may be the right person for the job but time isn’t on his side. Credit Suisse shares have lost 27% of their value in six weeks, while banks in Europe have gained 5%.

The most important position at Credit Suisse after the CEO is head of investment banking, which has gone to Christian Meissner. He departed Bank of America Corp. in 2018 after that firm’s own brush with excessive risk-taking on derivatives.

Credit Suisse’s move to curb employee bonuses for this year is an important signal, although it won’t help with staff retention. Its self-harm in recent years has left a deep mark. Luckily for the bank, Switzerland’s stability will always attract customers. But a new mindset at the top is needed if investors are to believe that the board can get a grip on what’s going on throughout the business.

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.

©2021 Bloomberg L.P.

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