One of Credit Suisse CEO Tidjane Thiam's first decisions in a 2015 revamp was to bin the Swiss bank's North American wealth arm. More than four years on, several court cases undermine the strategic sense of the move.
At last week's Davos confab, Tidjane Thiam repeated his views on banking wealthy Americans at home: «I said many times on the record our appetite to take on J.P. Morgan, Bank of America and the others in America is limited.»
His remarks seemed to leave no room for misunderstanding – even if Credit Suisse is plotting a partial return to the U.S. market, as finews.comreported in October. The Swiss wealth manager never stopped catering to American super-rich, out of its investment bank.
Thiam Wanted to Get Rid of RMs
A glut of new documents reported by «Bloomberg» (behind paywall) illustrate that Credit Suisse was anything but keen to get out of the world's largest market for private banking. Even more so, Thiam's logic for offloading Credit Suisse's U.S. brokerage to Wells Fargo in 2016 wasn't strategic at all.
The CEO, at the time under pressure to top up Credit Suisse's depleted capital, reportedly simply calculated the cost of getting rid of pricey brokers while leaving a window open to restock later. The U.S. news organization cites documents made public in arbitration and court filings by brokers who are looking to recoup pay from Credit Suisse after leaving the Swiss bank.
Agree to Remain Silent
An email from Thiam to Robert Shafir, then the co-head of Credit Suisse's private bank, on the day of the Wells Fargo deal reveals the CEO's thinking: «We do not intend to return to wealth management per se,» Thiam wrote. «We could agree to be silent on that point.» The upshot? The super-wealthy could be catered to by its investment bank.
Thiam had done his homework and detected the typical pattern prevalent in U.S. wealth management: relationship managers participate in the revenue they generate due to compensation rules that apply in the U.S. At Credit Suisse, the share for the relationship managers is said to have been 42 percent. Hence, the bankers took a higher percentage out of this business than shareholders. When Credit Suisse reported the divestment of the unit to Wells Fargo, Thiam argued that profitability at the bank's U.S. wealth management unit had not been sufficient.
Return With a Different Compensation Package
UBS is also being held back in the U.S. due to a weaker profitability compared with other wealth management markets. And yet, the country remains the largest and most lucrative market for the business. Thiam therefore considered returning to the U.S., but with a altogether different compensation structure for relationship managers, according to «Bloomberg».
Credit Suisse issued a statement in reaction to the report by «Bloomberg»: «There is absolutely no credibility to this story. We fully exited our U.S. private banking business as announced in 2015.»
Only a Third Accepted the Offer
David DeNunzio, a former M&A-banker at Credit Suisse is the prime source for the turn of events as reported by «Bloomberg». He said in the arbitration procedure with two ex-Credit Suisse relationship managers that the return to the U.S. with a different pay regime – with regular salaries and bonuses – had indeed been discussed. Credit Suisse never had wanted to give up on the U.S. business.
It quickly became clear that Thiam's plan to get rid of the expensive advisers would founder. Credit Suisse had told its private bankers that they either had to accept the offer by new owners Wells Fargo or leave, and thereby forgo the deferred bonus payments.
UBS Hiring Ex-Credit Suisse Bankers
More than 200 of the 336 advisers opted for the second of the alternatives. UBS took more than 100 of the arch rival's relationship managers, prompting Credit Suisse to complain to the regulator.
The relationship managers have filed a complaint against their former employer for the loss of the deferred payments. Credit Suisse was able to stave off a class action worth $300 million, but the individual arbitration cases are dealt with one by one. Credit Suisse has already lost some and appealed against the decisions.
