A new C-suite has been appointed, senior managers have been reshuffled and the rumour mill is growing by the day; Credit Suisse is getting its ducks in a row two months before announcing the results of its latest strategic review, alongside third-quarter earnings on October 27.
This week saw the announcements of Dixit Joshi as chief financial officer and Francesca McDonagh as chief operating officer, rounding out the senior team of new chief executive Ulrich Körner. Appointed in late July to replace Thomas Gottstein, Körner immediately announced a new “comprehensive” strategic review of the bank.
Credit Suisse has certainly been talking the talk: the new review will go beyond last year’s; it will strengthen its wealth management franchise; it will transform its investment bank into something capital-light and advisory-led.
But as for walking the walk, that remains to be seen.
Let’s wind the clock back for a moment to last year’s somewhat half-baked strategic review under previous chairman António Horta-Osório that followed the Archegos fiasco.
One option not even considered then might have been to throw everything at building a proper investment bank, as opposed to the half-hearted effort that has characterised the period since the departure of another previous chief executive, Tidjane Thiam, in 2020.
Instead, the bank merely threw the market a bone by exiting prime services – and in the process cutting the bit of an equities business that had arguably the best chance of making money.
A lot has happened since then, and obviously Credit Suisse could not have foreseen the full litany of calamities that markets, clients and economies are enduring now. But that doesn’t excuse the strategic missteps – they were true then and are all the truer now.
The reality is that for some time the bank has not had the capital to run a global investment bank of a size that could compete on an equal footing with big US competitors
The reality is that for some time the bank has not had the capital to run a global investment bank of a size that could compete on an equal footing with big US competitors. That it has been able to muddle along in spite of that is surely down to Europe’s fragmented nature, which flatters companies with strong domestic franchises while also protecting them from cross-border acquisition.
The US market would show no such leniency.
If Credit Suisse can’t support a big investment bank, what about a small one? That’s not so easy. Costs tend not to scale down in keeping with your ambitions as neatly as you might like.
Related to that is the cultural challenge of a divided firm. How much longer is Zurich prepared to support the expensive New York and London investment banking talent that it must often consider a cost drag?
And what chance of the investment bank ever thinking of the good folk back in Zurich as anything more than bureaucrats constantly out to stymie their chances of success?
Common narrative
Everything would be easier, of course, if the common narrative – that if only Credit Suisse’s wealth management business could rid itself of the drag of its wretched investment bank, then it would be free to soar into the heights – was accurate.
But it’s not.
Here’s the thing: Credit Suisse has built a wealth management business that needs a big investment bank, not a small one. That means it can’t easily cut the investment bank without also rethinking the core wealth management business.
The issue is the nature of wealth management up in the rarefied air of the very wealthy. If you have $100 million to invest, you are surely very rich, but what you are looking for in your wealth manager is a business that mostly gives you access to off-the-shelf products and which provides services that effectively mimic a family office.
If you have a few billion to invest, you are more than very rich. You probably already have your own family office, and what you are looking for is much more along the lines of proprietary deal access.
The merely wealthy might be happy to take up a structured note that their wealth manager might issue – the sort of stuff that pays out more if the FTSE100 climbs a certain amount in the next year than if it doesn’t.
A billionaire might be more interested in putting some serious money to work betting on the price of oil if copper goes down and if the Democrats win the next presidential election. Or she might want big allocations into some private equity or private credit opportunities – that kind of thing.
These are the ultra-high net-worth clients that Credit Suisse has always prided itself on serving. The problem is that meeting their needs takes more than an investment bank-lite. UBS, its great rival, also makes a virtue of catering to the very richest, and has been slow to embrace the mass-affluent sector that, for instance, Morgan Stanley has been capturing to good effect.
But UBS has also pushed far more into the reaches of the high net-worth, below the ultra-high segment, than has Credit Suisse – and that distinction, when it comes to the flexibility it affords you in your investment banking strategy, is critical.
If – as most market commentary seems to assume – Credit Suisse is indeed set on plans to dramatically reduce the scope and scale of its investment bank, then the first step should be to make the wealth management business better able to operate independently of it.
That requires broadening the scope of that business to make up for what might be a smaller flow of investment banking product to its traditional clients.
Beyond the short term
What chance does Credit Suisse have of getting this right? In Körner, the bank has a CEO who has a reputation for being smart. He is said to have the kind of restructuring brain that Credit Suisse could use, at least in the short term.
Like Thiam before him, however, he has run neither an investment bank nor a wealth management business before. Since joining Credit Suisse about 16 months ago, he has been heading its asset management division, a business he also previously ran at UBS.
His thinking must go far beyond a short-term operational overhaul. To get this right he must put in place a culture that is cooperative rather than combative, and a strategic vision that is measured in years rather than quarters.
More immediately, he needs to take the bull by the horns in the new strategic review. And that means being more thoughtful than simply throwing the market a bigger bone – deeper cost cuts – than last time around.
The risk is clear: to take the axe to the investment bank but ignore how the wealth management business would then need to be reshaped in response would be the worst of all possible worlds.
Instead of slimming down just one business, you might starve two to death.
