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OPINION

Horta-Osório exit buys Gottstein time at Credit Suisse

Brought in to help clean up Credit Suisse, the high-profile Portuguese banker has been forced to quit to preserve what is left of its reputation.

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Did you hear the one about the tennis champion, the bank chairman and the prime minister?

The punchline has yet to – and may never – land for Boris Johnson, but Novak Djokovic was deported from Australia on Sunday and hours later António Horta-Osório resigned from Credit Suisse.

It doesn’t sound like he had much choice, and presumably he jumped before the board of Credit Suisse pushed him, so as to enable the rather unconvincing story of taking responsibility for his own actions in side-stepping first UK Covid quarantine rules and then Swiss ones.

The quote attributed to Horta-Osório in the press release announcing his departure expresses regret that “a number of my personal actions have led to difficulties for the bank and compromised my ability to represent the bank internally and externally”.

Switzerland, it seems, operates a one-tier legal system, unlike the country that gave the high-profile Portuguese banker his knighthood. The same rules apply to everyone.

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António Horta-Osório. Photo: Reuters

Even so, if Credit Suisse had been performing strongly with its businesses firing on all cylinders, its share price motoring and its brand a source of pride to the country, it’s an open question whether he might just have got away with it.

But that’s not where Credit Suisse is and there can be no second chances for this kind of rule-breaking: especially not for the figurehead brought in to instil a new culture of accountability and of diligently following correct procedures for risk management, including reputational risk management.

The recent scandals of having private investigators tail departing executives, of Archegos and Greensill, have intensified scrutiny of Credit Suisse and left executives and board members vulnerable to being ousted over any wrongdoing.

Over at UBS, by contrast, the chairman and the board were quick to back chief executive Ralph Hamers when news broke more than a year ago of investigations in the Netherlands into how much he knew about money-laundering at ING.

The two big Swiss banks may be following quite similar models – both shifting capital away from investment banking into wealth management – but their fortunes have diverged. UBS is viewed as a winner; Credit Suisse as accident-prone.

In the past six months, the share price of Credit Suisse has flat-lined at around SFr9.50 ($10.39) even as European bank stocks rallied. UBS has put on 34%.

Is there a winner in this? Perhaps Thomas Gottstein, the bank’s chief executive, is one

Horta-Osório’s end was sudden. His time atop a bank that it once looked as if he might dominate from the chairman’s office for many years proved short. His one contribution was the strategy review it took him five months to complete and which was unveiled at the third quarter 2021 results in November.

This marked an effort to re-paint the stock as a growth story, re-allocating capital away from the low-returning investment bank’s now shrunken prime services division into wealth management.

That makes obvious sense. However, plenty of investors would rather the bank hand capital back to them and leave their own portfolio managers to decide how to allocate it.

Andrew Coombs, analyst at Citi, noted that many investors had hoped for larger cuts to the investment bank, “whilst we argued the decision to focus on growth over capital return was ill-conceived, based on how accretive buybacks are to earnings per share when the stock is trading on only 0.6 times price/tangible book value”.

The messaging from Credit Suisse is that there will be no change to strategy. The bank still hopes it can show greater growth that will re-rate the stock.

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Axel Lehmann, Credit Suisse

The new chairman Axel Lehmann, a former UBS-banker who only came onto the Credit Suisse board in November as chair of the risk committee and a member of the governance and nominations committee that oversaw the investigation into Horta-Osório, will take a lower profile.

He says: “We have set the right course with the new strategy.”

To lose a chairman brought in to clean the place up in this way is unfortunate. Credit Suisse executives and shareholders alike must hope now for a period of scandal- and accident-free quiet. “However, in the medium-term we do wonder if the focus on growth over capital return and revenue growth over cost saves may be revisited,” wrote Coombes.

That debate won’t go away.

Is there a winner in this? Perhaps Thomas Gottstein, the bank’s chief executive, is one. The tale has been told that after his battlefield promotion on the eve of the pandemic he did not wield the same authority over the executive board that his own predecessor, Tidjane Thiam, did and that this permitted a culture of business division heads prioritizing revenue over the objections of risk managers to excessive exposure to dodgy clients such as Archegos.

Gottstein has, for now at least, survived Archegos, Greensill and Horta-Osório. He may be quietly pleased with how matters have turned out. Whether or not shareholders will be remains to be seen.

At the strategy review, Gottstein even dropped a hint that Credit Suisse might yet have another crack at wealth management in the US, where UBS has a big business. Credit Suisse has concentrated more on ultra-high net-worth clients in emerging markets.

“It may be capital light, but if you look at the cost-to-income ratio, I’m not sure US wealth management is such a good business to try to break into from a shareholder perspective,” one source tells Euromoney.