Credit Suisse shareholders will agree with the bank that 2022 is a year of transition. Opinions on the destination will vary. More so after Wednesday’s warning that a second-quarter loss is now likely. An awkward investment banking division is in the spotlight after Credit Suisse’s embroilment in the Archegos prime broking and Greensill lending scandals. Prosaic poor performance is the problem this time.
The Swiss lender appears to be suffering from chaotic drift. The phenomenon previously afflicted Barclays, Deutsche Bank and Rolls-Royce. Unruly currents buffet the sufferer from crisis to crisis. Individually, each disaster may be deemed exceptional. Collectively, they point to successive leadership failures and an entitled culture among employees.
This time round, Credit Suisse’s investment bank has been beset by market conditions rather than toxic clients and collaborators. Soaring inflation and the war in Ukraine are hitting a shrunken topline largely derived from unfashionable rates and equities.
The shares have fallen by two-fifths since the start of 2021, underperforming the wider European banking sector by half. At a multiple of 0.4 times tangible book value, they have never been cheaper.
The departure of “hands-on” chair António Horta-Osório following quarantine rule breaches — and the arrival of a more traditional chair figure in Axel Lehmann — means the buck stops with chief executive Thomas Gottstein. After two years in the job, it is time he proved he has Credit Suisse by the scruff of the neck. It is not enough to replace a culture of recklessness at the investment bank with one of mediocrity.
Regulatory capital is another issue. Credit Suisse has ruled out a financing. But the bank’s wriggle room looks limited. The common equity tier one ratio stood at 13.8 per cent at the end of the first quarter. A target of 14 per cent by 2024 remains in place. But on Wednesday the bank stated it would operate at 13.5 per cent in the near term.
Assuming retained earnings remain scarce, that leaves about SFr3.5bn ($3.6bn) before the CET1 ratio falls to 12.2 per cent, the level at which new capital was deemed necessary last year.
That leaves scope for modest new legal provisions, which totalled SFr1.2bn last year, but not blow-ups on the scale of Archegos. Europe is heading into a downturn. Gottstein had better pray the last of Credit Suisse’s skeletons has rattled from its closet.
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