There is still extraordinary potential in China, where we see the opportunity for a $26 trillion onshore wealth management market that we need to take our share of
At the end of 2018, Tidjane Thiam completed a three-year turnaround of Credit Suisse.
He and his management team had first raised equity and then promised shareholders to reframe the institution. By the end of last year, they had de-risked the balance sheet; cut costs; and re-focused the business on a core area of expertise – banking high net-worth and ultra-high net-worth (UHNW) individuals. This offered more stable revenues and the prospect of growth, while also dealing with the most troubling legacy misconduct issues.
What was their reward?
Over the course of 2018, the Credit Suisse share price fell by close to 40%. The recent AGM was troubled, with a two-hour discussion of contentious loans extended to Mozambique back in 2013 and 2014, long before Thiam arrived. What is his take on being a bank chief executive now that he has seen up close and personal the lack of trust among investors and the utter cynicism in wider society towards the industry.
“Consistency is very important,” he says. “We thought out our strategy. We stuck to our strategy. We have done what we said we would do.”
Of the share sell-off last year, Thiam tells Euromoney: “In the fourth quarter of 2018, credit spreads widened dramatically. Looking at history, some investors may have thought that every time that had happened previously, Credit Suisse’s earnings had experienced significant losses. They didn’t believe we really had de-risked our balance sheet.
“But look at what happened. We did not experience any idiosyncratic losses. We have to deliver consistently, year after year, on the core elements of our strategy and build trust that way. That’s how you get into a positive feedback loop.”
Yet the scale of litigation expenses the industry has faced – costs that at Credit Suisse have amounted to SFr17 billion ($16.9 billion) – and the threat of new cases coming to light hold banks in a negative feedback loop for now. How can Credit Suisse escape it? Thiam has an analogy that he uses with the bank’s own compliance staff.
“I’m a farmer. There is a breach in the fence around my land and some of my cows have escaped. I can spend my time and money trying to track down my cow, Geraldine, to find out where she has gone, who has taken her and what path she has followed. However, fixing the fence is the most urgent task for the farmer so no more cows escape.”
He recalls telling this to one outside party who advised: “Please electrify the fence.”
Thiam explains the repairs Credit Suisse has made: “We didn’t previously have a single client view. We were among the first banks to develop that – a system that gives us both one view of everything a client is doing across the bank and that also flags up connections between individual people, legal entities and their beneficial owners.
“I can never promise zero breaches of the fence, but our ability to spot any breach will be much better than in the past, we will self-report and deal with them swiftly and with determination,” he continues. “And we will be relentless at this, improving and evolving our compliance systems, even as external threats also evolve.”
Any bank needs a purpose attached to the real economy. Wealth is accumulating in the hands of UHNW individuals around the world, including many entrepreneurs, who require investment banking services for their companies. Provision of these services is fragmented among many banks with low market shares. What is Thiam’s world view?
“First, never bet against the US,” he says. “That is a losing trade. The US economy is very strong and will remain so for the foreseeable future. It is a market economy with strong rule of law, attracting the best brains from around the world into its education system, and a leader in industries that drive the world, like technology and healthcare. The US is an innovation
But Credit Suisse has missed out there.
“Second is the still extraordinary potential of China where we see the opportunity for a $26 trillion onshore wealth management market that we need to take our share of,” Thiam says.
“We have just acquired a majority in our securities company in China. The opportunity in both wealth management and in capital markets in Asia is big. We need capital markets capability in Asia. We will never give that up.”