Credit Suisse: a crisis Horta-Osório must not waste

Crisis: the word lies buried in Credit Suisse’s name, like a ghost in the shadows. The spectre has manifested itself in the implosions of trade financier Greensill Capital and Archegos, a family office-cum-hedge fund. The bank’s bosses show every sign of being as panicked by the phantom as investors.

On Thursday, Credit Suisse reported a SFr757m ($825m) loss in the first quarter. But the real jump scare for investors was an unexpected capital raising in the form of a SFr1.7bn ($1.9bn) mandatory convertible note. Potential equity dilution of 8 per cent triggered a short but hair-raising dip in the shares.

Chief executive Thomas Gottstein promised a review of recent debacles. But reform must be led by incoming chair, António Horta-Osório. He stabilised UK lender Lloyds in the wake of the financial crisis — albeit at huge cost in mis-selling compensation payments.

Credit Suisse needs a credible risk management culture and a clearer strategy. No one was impressed when Mr Gottstein, a veteran who became chief executive last year, lauded operational performance. Quarterly net revenues climbed 31 per cent year on year, with net new money under management up SFr28bn.

The real issue was a SFr4.4bn write-off for Archegos-related losses, the equivalent of a tenth of tangible equity. A common equity tier one ratio of 12.2 per cent after this hit — below the previous target of 12.5 per cent — was too low. Gottstein’s new goal is 13 per cent. Another SFr600m loss from Archegos, worth 20 basis points, is expected later. Hence, the capital raise.

Horta-Osório must restructure executive incentives. Arch-rival UBS has already dispensed with net new money targets, focusing instead on profitability. Every bank boss expects growth from division heads. But Credit Suisse pushed the ethos too hard under previous chief executive Tidjane Thiam.

The Portuguese banker should examine checks on the powers of executives. Ambitious Lara Warner, former chief risk and compliance officer, appears to have signed off bad deals with surprising ease. Here, Horta-Osório, whose main recent experience has been at retail banks, may need support from other fresh board members.

Credit Suisse’s new chair is a skilled diplomat who can sometimes be slow to grasp a nettle. His best chance of turning Credit Suisse round lies in swiftly resetting strategy and culture. Only too soon, long-serving Credit Suisse executives will begin dismissing Greensill and Archegos as “legacy issues”.

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