Credit Suisse Faces Angry Investors With Gap to Rivals Widening

(Bloomberg) -- Credit Suisse Group AG executives are set to face off with miffed shareholders for the second year in a row after a losing streak of profit warnings, scandals and management tumult sent the stock into a tailspin.

Powerful voices are again lining up to question the bank and its approach at the annual general meeting on Friday. Norway’s sovereign wealth fund, one of the bank’s largest shareholders, is backing a call for a special audit into the collapse of funds the bank ran with former partner Greensill Capital. Advisors are urging investors not to absolve leadership of liability for mistakes made in the run-up to the Archegos Capital Management debacle.

The twin scandals, which saddled the bank with billions of dollars in losses, left Credit Suisse mired in the most difficult period since the financial crisis, with no end in sight. Just this year, it’s forced out a new chairman supposed to take the firm out of its funk, surprised shareholders with costs related to old lawsuits and warned some fund investors that it may take years for them to get a portion of their money back.

As the woes have dragged on in what has otherwise been a banner period for global investment banks, the gap with competitors has grown. Credit Suisse shares have lost half their value since Chief Executive Officer Thomas Gottstein took over more than two years ago, while Swiss rival UBS Group AG’s stock is up. And the firm has managed less than $1 billion in total profit in that time, whereas UBS and Barclays Plc exceeded $15 billion.

First-quarter results on Wednesday laid bare the steep challenges still facing the bank as it seeks to regain investor confidence: trading revenue that was half that of a year ago in a strong quarter for peers, legal hits still to come and weaker than expected wealth management results. With little to buoy investor sentiment, 7.9 billion francs ($8.1 billion) of new client inflows was one of the few bright spots of a quarter marked by an unexpectedly large loss. 

Some stakeholders have lodged complaints due to the loss of shareholder value. The bank is expected to settle with those investors for about $200 million, according to analysis by Elliott Stein, a litigation analyst with Bloomberg Intelligence. 

The Norwegian fund has said it will vote against absolving the bank’s leadership of their legal liability for the fiscal year 2020, in line with recommendations by proxy advisers Glass Lewis and ISS. It said it will support a discharge for 2021 after Credit Suisse excluded the collapse of the Greensill funds from that vote. The Norwegian fund regularly takes an active role at shareholder meetings to promote responsible investment. 

Shareholders were also on the offensive before last year’s meeting, which featured outgoing Chairman Urs Rohner apologizing and his successor, Antonio Horta-Osorio, vowing to fix things. Andreas Gottschling, head of the risk committee on the board of directors, was forced to stand down. 

This year, it will be Axel Lehmann’s turn to address investors, after Horta-Osorio was ousted for breaching Covid quarantine rules. Longtime board member and vice chair Severin Schwan already decided not to stand for re-election. Shareholders such as David Herro of Harris Associates said that they weren’t content to see long-standing directors re-elected after presiding over a prolonged period of scandal.

Credit Suisse’s most recent troubles started even before the Archegos and Greensill scandals hammered home the bank’s risk and governance issues. In a city famed for its discretion in managing vast amounts of money for global investors, the lender found itself an unwelcome fixture on local tabloids for months after it was embroiled in a spying scandal under former CEO Tidjane Thiam. Not long after, the surprise hits to the balance sheet that are continuing to this day started with a $450 million impairment on its stake in York Capital Management. 

Gottstein, abruptly named to the top job after Thiam’s departure, will soon be the only member left from the dozen-strong executive board he was appointed to lead. When asked by a journalist on Wednesday whether he had considered stepping down, he said he had “a clear mandate” to execute on a strategic plan that runs until 2024.

“I have only been in the CEO role for two years now,” Gottstein said. “I started just a few weeks before the pandemic. I am now fully focused on executing the plan with the board.”

Beyond the bank’s self-inflicted damage, the CEO is contending with a multitude of macro factors outside his control that further risks derailing the recovery. Wealthy investors, particularly in the Asia Pacific region, are sitting out the volatility in markets, hurting fees for the private bank. Covid lockdowns in the region are reviving fears of supply chain disruptions. 

The business of advising on mergers and acquisitions, a traditional strength of the lender, has taken a hit because of the Russian invasion of Ukraine, with little in the way of visibility on when that business will return.

The bank on Wednesday announced a raft of changes to the top management team, completing a long series of management shakeups. Veteran Chief Financial Officer David Mathers is standing down, as is the bank’s head of Asia and top legal counsel. Bank of Ireland CEO Francesca McDonagh becomes head of the EMEA region from October, making her one of the bank’s highest-ranking women, alongside head of human resources Christine Graeff and Joanne Hannaford, the head of operations and technology.

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