The author is a former chief government of Credit score Suisse
Like everybody else, I watched the occasions unfolding in Zurich in current days with one thing akin to shocked disbelief. After I stepped down because the chief government of Credit score Suisse, it had simply posted its highest income for 10 years after a deep restructuring. And although I managed the difficult conditions that developed below my watch successfully, issues have gone unsuitable within the years since.
Little greater than three years later, the identical financial institution, a part of Switzerland’s nationwide cloth for greater than 160 years, was ushered into the arms of its largest rival, UBS, over the course of a frantic weekend.
Sadly, there might be a human influence on the various hundreds of individuals, and plenty of former colleagues, who’re prone to lose their jobs following this rescue. Since I left the financial institution in February 2020, I’ve principally kept away from commenting on Credit score Suisse, however the flip of occasions now compels me to talk.
An enormous a part of my job as chief government — helped by a devoted staff — was setting a brand new course in the direction of wealth administration and away from funding banking to totally realise the potential of the franchise. However simply as massive a activity was strengthening the stability sheet, which ranked backside of the record of systemically essential banks after I joined. So we raised SFr10bn of fairness, tackled multibillion-dollar legacy points, from the US mortgage securities market to Mozambique, minimize danger publicity by 45 per cent and eradicated greater than SFr100bn of impaired belongings.
Threat was all the time a precedence for me. It was clear that the financial institution’s danger techniques wanted a significant funding and that this might be a big, multiyear endeavor. I typically described this as a 10-year job, which was clearly not full by the point I left. A couple of days into the position, one in every of my first choices was to approve $150mn of latest funding in danger administration techniques. We additionally elevated compliance employees by greater than 40 per cent, even once we had been conducting a significant cost-cutting programme throughout the financial institution.
It was clear that till danger and compliance techniques had been materially improved, behaviour and tradition can be extra essential than ever. After the preliminary and well-publicised losses in distressed debt skilled in late 2015, I shut that enterprise down, decreased our danger urge for food and made positive everyone understood I wished to listen to dangerous information when it occurred. We managed to get via 16 quarters with out a critical problem, had greater than $200bn of wealth administration inflows, minimize danger and minimize each working and legacy prices. By 2019, Credit score Suisse was making practically as a lot revenue as its new proprietor UBS. Its present plight saddens me. However we have to concentrate on what occurs now.
UBS has stated it can preserve Credit score Suisse’s “crown jewel”, the standalone Swiss financial institution I created that has been a persistently robust performer regardless of the broader group’s points. Nonetheless, regulators ought to look once more at whether or not they ought to permit a single home participant of this dimension within the Swiss market. Arguably, UBS trying to soak up CS’s Swiss common financial institution would do little besides add hundreds extra job losses to these already anticipated in funding banking.
From a wider perspective, policymakers want to lift traders’ confidence within the European banking sector. The therapy of the holders of extra tier 1 bonds (AT1s) has created important uncertainty. What occurred will play out within the courts for years.
There’s a fundamental precept that widespread fairness takes the hit first. Evidently the therapy of AT1s — even when right below the present Swiss guidelines — will increase the price of capital for Swiss banks and for European banks. This can have a few of their US friends rubbing their fingers. AT1s or “cocos” are an essential supply of capital for European banks, and due to the market urge for food, rates of interest might not have totally mirrored the dangers concerned. This new layer of uncertainty can have an opposed influence on the competitiveness of the European banking sector. Internet web, US and Asian rivals might come out of all this comparatively stronger.
A associated problem is that shareholders had been denied a vote with emergency legislation adjustments, which shocked many traders and market individuals. In fact, this was an emergency. The choice might have been far worse. However after the hundreds of hours spent engaged on issues like decision plans since 2008, the episode reveals the necessity for additional work to codify approaches to banking crises and be extra clear with traders over the seemingly response from policymakers. We should study the teachings from the previous few days — in any other case Credit score Suisse can have fallen in useless.