It could – perhaps should – have been a far tougher year for Credit Suisse. The Swiss lender lost its chief executive when Tidjane Thiam resigned in the first week of February, just before Covid-19 made landfall in Europe.
Most banks would have reeled from the news. Yet Credit Suisse shook off the dust, found a replacement – Thomas Gottstein, a 20-year veteran of the bank – and soldiered on through lockdown and beyond.
Covid stopped Gottstein from globetrotting and meeting staff and investors. At home, with the crisis in full swing and Swiss corporates struggling for their financial lives, he reached out to regulators, the Swiss National Bank and then to the likes of UBS.
The result was a coordinated SFr20 billion ($21.9 billion) package for small businesses, three quarters of which was disbursed within a week of its launch on March 25, startling even the usually unflappable Swiss by its speed.
“Thomas deserves a lot of respect for his leadership, and the bank does too,” the bank’s chief financial officer David Mathers tells Euromoney.
Gottstein will now be joined at the helm of the bank by António Horta-Osório as chairman; the latter is due to join the bank from UK lender Lloyds at the end of April 2021.
Shake-up
Under Thiam, for three years after his appointment in 2015, the bank raised capital, de-risked its balance sheet and shifted its focus to serving super-wealthy clients.
Under Gottstein, the bank has not sat still. In July 2020, Credit Suisse created a single platform comprising global markets, investment banking and capital markets, as well as Asia markets. It also combined its chief risk and compliance officer functions, and launched a new sustainability, research and investment solutions (SRI) unit at board level. That shake-up required resolve.
“We were nervous about doing significant restructuring when so much of our workforce was working remotely but went ahead once we had completed the second quarter,” says Mathers.
And it worked, making reporting lines cleaner and simpler. Mathers believes it’s what Thiam would have wanted. Back in 2015, the former chief executive set out to shrink the investment bank to free up more resources for Asia and wealth management.
Now, Mathers says, it is “time to put the single investment bank back together.” The bank hopes to save SFr400 million a year from the reorganization from 2022 onward.
“I would say SRI,” Mathers responds when asked which of the three July strategy decisions will have the greatest long-term impact on the bank. It will enable us to align our credit, asset and overall wealth management strategy toward our ESG [environmental, social and governance] goals, including linking up our research efforts and our investment services group where we create products for clients.
If you don’t allow banks to pay dividends, it cuts into the investment thesis for why you own the equity
David Mathers, Credit Suisse
“We have COP26 [the UN Climate Change Conference] in Glasgow next year, so we are going to see over the next two to three years a formalization of ESG reporting standards,” he adds. “It’s going to be a huge block of work, but without standardization it’s difficult for investors to fully judge any company.”
At the pointy end of businesses, Credit Suisse has mostly kept investors happy. It posted net income of SFr1.16 billion in the second quarter, up 24% year on year, helped by a strong performance from global markets.
It was also the best second-quarter performance for a decade.
The bank booked SFr296 million worth of provisions against bad loans in the quarter, against SFr568 million in the first three months of 2020.
Net profit attributable to shareholders then slid 38% year on year in the third quarter to SFr803 million, hit by restructuring expenses, higher litigation provisions and US dollar weakness. But net revenues from investment banking rose 11%, helped by buoyant conditions in Asia.
Asked to identify the bank’s best statistical achievement in 2020, Mathers singles out return on tangible equity, which was 9.8% in the first nine months, against 8.8% a year earlier.
“In an economic crisis, that says a lot about our cost base, revenue diversification and relatively conservative credit provisioning.”
The bank finished the third quarter with a common equity tier-1 ratio of 13%, against 12.4% a year before.
Dividends
Credit Suisse will restart its share buyback programme in January 2021, returning up to SFr1.5 billion to shareholders. Unlike most European banks, it will pay a 2020 dividend that is 5% higher than last year’s number.
“It is worth remembering that US banks have continued to pay dividends throughout 2020,” says Mathers, noting it was mostly UK and European banks that bowed to pressure to put payments on hold.
Pointing to a stronger-than-expected capital base – the result of serving wealthier clients and a resilient Swiss economy – he says it was “prudent to continue with our dividend policy for our shareholders. If you don’t allow banks to pay dividends, it cuts into the investment thesis for why you own the equity. That raises the long-term cost of capital.”
Challenges remain. Speaking via Zoom on November 11, Gottstein said 2021 would be “tense” as everyone works to mend a fractured global economy.
It has been a tough year for everyone. But many banks are emerging from it with their heads held high. Credit Suisse is one of them.
