Credit Suisse's Giant Repair Job Is Only Just Beginning

(Bloomberg Opinion) -- In ousting Chief Executive Officer Tidjane Thiam, Credit Suisse Group AG is taking only a first step in rehabilitating its battered reputation. A spying scandal, embarrassing revelations on how the bank is run and a public spat at the top of the company have seriously tarnished a 163-year-old Swiss banking franchise whose clients depend on its discretion. The exit of the firm’s first black CEO — despite the objections of several leading shareholders — leaves a huge amount for his successor to repair.

It was inevitable that someone at the top would go. The only question was whether it was Thiam or Chairman Urs Rohner. After it emerged that the latter was considering replacing his CEO, three top international investors called for Rohner to leave instead.

Given the revelations from the spying scandal — Credit Suisse had its star wealth manager, Iqbal Khan, followed when he agreed to join arch-rival UBS Group AG, a few months after he’d had a public row with Thiam — it was striking that the investors went public to back Thiam unequivocally. The CEO was cleared of direct knowledge of the spying, but more cases of alleged similar behavior gave the impression of a company that was out of control.

The investors credited Thiam for turning around the lender. Under his watch, Credit Suisse has shrunk, cut costs and tilted further toward wealth management and Asia, all while retreating from the volatile trading business that burned the bank in the past. While the shares have suffered recently — no doubt in part because of the spying disclosures — a long and painful restructuring is beginning to bear fruit, as financial results next week are expected to show.

But Rohner won the day with the board because fears about the damage to the bank’s credibility, in Switzerland especially, outweighed the need to carry on Thiam’s work. “We saw a deterioration in terms of trust, reputation and credibility among all our stakeholders,” Rohner told Bloomberg News on Friday. Switzerland was a particular worry, given that it provides 40% of Credit Suisse’s pretax income.

By replacing Thiam with Thomas Gottstein, the first Swiss national to hold the post in almost two decades, the board will hope to rebuild the firm’s reputation. The 20-year company veteran — described by analysts as “very Swiss” and a “safe pair of hands” — has been leading Credit Suisse’s domestic unit. Under his watch, a division once earmarked for a spin-off has increased its contribution to the group’s pretax profit by 30%.

Nevertheless, as I’ve argued before, it’s hard to pin all of Credit Suisse’s troubles on one person; serious work is needed to cauterize the wound. The leaks of senior level bust-ups and employee surveillance have filled the pages of local (and international) media in recent months. Gottstein will need time to persuade clients that he is fixing the bank’s corporate culture.

The spying debacle exposed weaknesses in Credit Suisse’s governance that regulators are still probing. While Thiam and Rohner say they had no knowledge of the spying operations being carried out by their former chief operating officer, that’s hardly an endorsement of their oversight. “I had no knowledge of the observation of two former colleagues,” Thiam said Friday. “It undoubtedly disturbed Credit Suisse and caused anxiety and hurt. I regret that this happened and it should never have taken place.”

His failure to rein in his COO points to a leadership deficiency for which the board also needs to be held accountable.

Gottstein’s task is complicated by the unprecedented rupture with key shareholders. On Friday, longtime investor David Herro of Harris Associates called again for Rohner to quit to give Gottstein a proper fresh start. Credit Suisse says Rohner has the board’s full backing to see out his full term, which ends next year.

As well as winning around angry shareholders and making sure Thiam’s turnaround remains on course, Gottstein’s success will also hinge on his ability to restore sanity to the firm’s upper ranks. Khan’s departure to UBS, after his falling out with Thiam, was a serious blow, not least because he’s replicating the Credit Suisse playbook of expanding by lending more money to the rich.

Credit Suisse shares have underperformed those of its peers under Thiam, but they fell on news of his departure — highlighting the challenge for Gottstein in taking the reins. His predecessor’s abrupt departure won’t be enough by itself.

This column does not necessarily reflect the opinion of 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.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.