Credit Suisse announced a new CEO along with its dismal second-quarter results. He will spearhead a strategy review for the group which aims to put the bank back on a sustainable course.
In June, Credit Suisse conducted a rather milquetoast Investor Deep Dive, where the beleaguered bank affirmed the strategy adopted in November, focusing on risk culture, compliance, technology, and closing with wealth management. It was apparent investors were hungry for more, and with today's announcement of its new CEO to oversee a new strategy, Credit Suisse is hardly taking the bull by the horns.
Back to Basics
Along with announcing disastrous second-quarter results in which it posted a 1.6 billion Swiss franc ($1.7 billion) loss, Credit Suisse introduced Ulrich Koerner as the new CEO. Among other things, he will be heading a comprehensive review of the bank's strategy, Credit Suisse announced, with the goal of looking at alternatives beyond the conclusion of the strategic review conducted last year, particularly in light of a changing market and economic environment.
«Our goal must be to become a stronger, simpler, and more efficient group with more sustainable returns,» said chairman Axel Lehmann. To that end, Koerner will be tasked with driving «our strategic and operational transformation, building on existing strengths and accelerating growth in key business areas,» he added. But what does that entail?
While Credit Suisse sketched the broad outlines of a plan, details remain vague.
Channeling UBS
Becoming a more agile company is something UBS CEO Ralph Hamers has been hammering into the culture at Switzerland's largest bank. Beginning on January 1 of this year, UBS discontinued all corporate ranks above managing director, including group managing director, divisional vice chairperson, and regional group chairperson, as reported by finews.com.
Credit Suisse will seek to emulate that and mold the firm into «a more focused, agile group» with a significantly lower cost base to provide the foundation for sustainable returns. The bank has already made strides in that direction with the appointment in January of Joanna Hannaford as chief technology and operations officer who is introducing a framework of agile practices, as finews.com also reported.
Bloated Costs
One objective of the new strategy will be to reduce the group's absolute cost base to below 15.5 billion francs. But considering operating expenses were 9.7 billion francs during the first half of the year, expanding 18 percent from a year ago when they were at 8.3 billion francs, costs seem to be going in the wrong direction at the moment.
What is not clear is whether those cost savings will entail shedding staff. For the time being Credit Suisse was content to limit itself to the rather bland language to «deliver significant savings in the technology and operations function to improve scalability and ensure the long-term sustainability of these efficiencies, while continuing the digital transformation and improving the group’s sound risk culture.» It is unclear what that actually means, and once again investors will have to read the tea leaves while waiting for more definitive answers.
Building on Strengths
Credit Suisse has in the past years suffered from myriad scandals and is in the long process of resolving those. Perhaps learning lessons from those debacles, the bank is seeking to focus more heavily on its core strengths of global wealth management, Swiss universal banking, and asset management.
The priority of the review will be «to enhance these positions while considering options for fundamentally reshaping the investment bank» into a competitive banking and sustainable markets business to complement both wealth management and the Swiss bank, Credit Suisse said.
Clearly, something needs to be done at the investment bank which suffered an $860 million pre-tax loss in the second quarter. Operating expenses were up 12 percent, and included $200 million of major litigation provisions, mainly in connection with a previously disclosed matter concerning compliance with records preservation requirements relating to business communications sent over unapproved electronic messaging channels. Restructuring costs added another $63 million.
Untapped Opportunities
Credit Suisse said it will also evaluate the strategic options for its securitized products platform, saying that attracting third-party capital could shake loose resources which the bank can then invest in the units targeted for growth.
The franchise employs $20 billion of risk-weighted assets (RWA) and $75 billion of leverage highlighting the «significant untapped growth opportunities which may be best unlocked by attracting third-party capital.» Credit Suisse said it also remains fully committed to supporting its clients in the securitized products space.
Deeper Hole
Today's presentation was a broad outline of Credit Suisse's goals and said it will give further details on progress and specific performance goals when it announces its results for the third quarter. Clearly, the second quarter results showed that the bank has dug itself further into difficulties.
There is an adage that says if you find yourself in a hole, you should stop digging. Let's see if the strategic review provides the CEO with a useful shovel and if he can wield it successfully.
