Credit Suisse and the loneliness of the long-distance chief executive
The bank's chief executive Brady Dougan is under sustained attack internally and from disaffected shareholders amid financial pressure, a three-notch credit downgrade and a projected wave of job cuts.
Credit Suisse chief executive Brady Dougan is a marathon runner, not a team-sport aficionado, but he probably knows enough about the dynamics of sports franchises to realize that a public vote of confidence from a chairman is normally a sign of impending doom for the team manager.
The unusual statement put out by the Credit Suisse board of directors on June 22 expressing comfort with the progress made by the bank’s management towards meeting regulatory capital requirements was the financial equivalent of a vote of confidence by a chairman for a manager.
A separate statement put out by Credit Suisse on June 22 in reaction to the Moody’s downgrade of the bank and many others also smacked of desperation. The Credit Suisse bulletin correctly noted that the bank remains one of the best rated in its peer group, with only two banks rated higher. It failed to find room to observe that Credit Suisse was the only big bank to suffer a three-notch downgrade in the Moody’s reassessment of the industry. Even Morgan Stanley, with a combination of public wheedling and reiteration that it has snared Mitsubishi UFJ in a mutual death embrace, managed to get away with a two-notch downgrade.
The Moody’s three-notch downgrade for Credit Suisse can be interpreted as a rebuff for Dougan’s policy since the start of the financial crisis of providing more detailed public iterations of evolutions in his business plans than most of his competitors.
This is unfortunate, as the bank’s willingness to articulate its views on changes in business conditions is in welcome contrast to the bromides provided by many of its peers. The problem for Dougan is that he has failed to translate his clear-eyed interpretation of investment banking trends into above-par results.
Investment banking results have been disappointing in each of the past two quarters and in the current environment the bank’s strengths in areas such as cash equities and credit do not appear to provide a competitive advantage, while it is exposed to potential loss of market share in sectors such as flow rates.
Dougan also faces a fundamental problem in the form of sniping from subordinates who see him as fatally weakened. He has been besieged within Switzerland for some time. An American investment banker was never likely to win a popularity contest among regular Swiss citizens in the wake of the financial crisis. In the past two months Dougan has also been under sustained attack from the Swiss financial establishment, however, with members of his own bank appearing to provide ammunition for his critics.
There were two separate reports in Swiss newspapers in May alleging that Credit Suisse chairman Urs Rohner would replace Dougan if he could find a suitable successor. This looked very much like an attempt by disaffected bank insiders to flush potential candidates for the job into opening informal channels of communication with Rohner. Apparent counter-briefing by the incumbent Credit Suisse management team led to further reports pointing out that there is no viable internal candidate to replace Dougan. But that simply shifted speculation towards senior figures outside Credit Suisse who might be tempted to take the job if it was framed in a way that positioned them as playing a role as a potential saviour of a Swiss national banking champion. Josef Ackermann, the one-time Credit Suisse investment banking head who recently stepped down after a decade running Deutsche Bank, was an obvious name to link to the job. Others will emerge if Dougan’s position appears to remain under threat.
Dougan was widely reported to have been blindsided by the Swiss National Bank claim that Credit Suisse is undercapitalized, which did nothing to dispel the perception that he lacks close relations with the Swiss regulatory establishment.
The investment bankers who work for Dougan in London and New York will not be key constituents in any coming decision on his fate – shareholders and board members will play the main role. But Dougan might suffer from half-hearted support from the bankers who generate the firm’s revenue. Cuts are being implemented across the investment bank and senior bankers are suffering from the slide in the firm’s share price. There is also an enduring perception that Dougan’s grip on power was weakened with the early death in 2010 of Paul Calello, the head of the investment bank at Credit Suisse. Calello was a charismatic figure who was popular across the bank and served to soften Dougan’s aloof image. If Dougan is to regain clear control of Credit Suisse he will have to do it in the way he ascended to the top – by dint of indisputable financial performance.