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Sunday, 22 October 2017

Credit Suisse strategy acceleration? More like a second bite of the cherry

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  • keith mullin

Is it just me or is there something awry at Credit Suisse? I mean, how many excuses did CEO Tidjane Thiam throw out today to try and mask – unsuccessfully in my view – his own shortcomings and those of the strategy he unveiled last October?

What we got to account for the strategy ‘acceleration’ was altered market conditions (the worst January ever, spikes in equity volatility, spread widening in high-yield, reductions in ECM and HY issuance etc); regulators (structural changes, specifically vis-à-vis Fed stress tests around securitisation); and trader skullduggery (ramping up illiquid credit positions).

Telling everyone that the strategy wasn’t formulated to take account of the set of market conditions we were presented with in January hardly engenders confidence in the plan’s robustness. Admitting that traders were allowed to build up illiquid fixed-income positions to try and skirt the cost-cutting programme without the knowledge of decision-makers points to serious management shortcomings. How humiliating, by the way, for Thiam and CFO David Mathers to have to go public on being completely in the dark about it.

Suggesting that cultural changes were required clearly infers something sinister is afoot. And if the answer is deemed to be cultural, as Thiam said, he need only look in the mirror to figure out whose responsibility that is.

How many goes at getting the group strategy right does a CEO need? After the initial announcement in October, there was an opportunity to update us on February 4 when Q4 and full-year 2015 results were announced. The market conditions that Thiam referenced and the build-up of illiquid positions were both clear to him by then. But we had to wait seven weeks until today’s acceleration announcement.

Let’s not kid ourselves: today’s acceleration at Credit Suisse is nothing of the sort: it was a second attempt after the first one failed to go far enough (which is what many people said back in October when it was announced). And does blaming market conditions suggest that when they change again, we’ll get another strategy acceleration or change of direction? I thought strategies were supposed to be strategic, not tactical.

So what did we get today? Another round of job cuts (2,000); a reappraisal of the global markets footprint; a decision to exit European securitised product trading, distressed credit trading and long-term illiquid funding; cuts in out-size illiquid positions (US CLO secondaries and distressed); cuts in RWA and capital usage; reduction in leverage; an increase in cost-saving targets; the creation of a solutions business line to house structured lending and derivatives capabilities; a switch of FX cash and options into the Swiss universal bank out of global markets; and a distinct shift towards equities.

Will the second bite of the strategy cherry bring required results? That’s a tough call to make at this point, particularly as the cuts announced today included some business lines that had previously been considered marquee businesses at Credit Suisse. I know there aren’t supposed to be any sacred cows in the quest to create a sustainable business model with non-volatile earnings. But still…

Investors certainly gave today’s news a thumbs-up as CS stock was more than 2% up in mid-afternoon trading. I’m not so sure about that. The day after Thiam came out with his October plan, I’d written a commentary entitled: “Thiam ahead on points as Credit Suisse reveals all”. I’m reversing that early call and going flat. I’ll review that once we get news of the Barclays plan and when we get a sense of how John Cryan is getting on with his plan to set Deutsche Bank on its course. Watch this space.

 

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