Credit Suisse CEO Tidjane Thiam tried to put a brave face on the latest shake-up at his troubled bank last week, but many in the market were not exactly buying it – including some of his own staff.
Thiam said the size of the bank’s illiquid positions, which occasioned nearly US$1bn of losses, had been a “surprise” to him and others at the bank.
But two Credit Suisse bankers told IFR the real surprise was that Thiam, installed as chief executive less than a year ago, could claim that the bank’s positions were not known about.
The bankers, who asked not to be named, said it was inconceivable that the bank’s Capital Allocation and Risk Management Committee (CARMC) was unaware of the holdings.
CARMC reports to Thiam and the Credit Suisse board.
The illiquid positions in the distressed credit and structured finance trading books led to a US$633m writedown in the fourth quarter of 2015 and another US$346m for the first quarter of this year.
“Clearly, something didn’t go right there,” Thiam told an analyst call last week. “Even internally the scale of those positions was a surprise for a number of people.”
But one senior Credit Suisse banker suggested that Thiam had in fact “gone off-script” when speaking with analysts and in later media appearances.
“He went off the agreed line,” the banker said. “The COO, the CFO knew about the [positions taken by] these businesses. CARMC happens every month. The notion that people didn’t know is simply not believable. It is incredible that a man of his experience should do this.”
Bankers outside of CS also questioned the claim.
“It isn’t a rogue trader thing,” said one banker who formerly worked at Credit Suisse and retains contacts at the bank.
Indeed, hours after saying that positions had been taken that senior management didn’t know about as a consequence of “unacceptable” practices, Thiam had to issue a statement confirming that traders were in fact trading inside their limits.
All in confidence
Thiam appeared to confound observers still further last week when he named the two men who had overseen those positions as co-heads of a new global markets division.
Brian Chin and David Miller had run, respectively, the credit and structured finance operations – the very books responsible for the supposedly surprise losses.
“There have been consequences,” Thiam said on the analyst call. “I don’t want to name names, but there have been changes.”
Yet with Chin and Miller now running a new division – a merger of the credit and structured operations – many were left wondering exactly who had borne the consequences of what.
Meanwhile, CFO David Mathers abruptly pulled out of an industry conference last week – something “that caused a lot of speculation”, the former CS banker said.
Thiam was asked by reporters if Mathers still had his total confidence.
“Absolutely,” he said.
More to come
While Thiam will surely have been frustrated by the number of questions swirling around last week’s activity, some of the biggest may be yet to come.
After booking the nearly US$1bn of writedowns, some in the market are now wondering how much Thiam knew – or should have known – when the bank raised capital via a December rights issue after the markets had weakened so much the previous month.
“Does this create additional litigation risk?” asked Huw van Steenis and other Morgan Stanley analysts in a report on Thursday.
One investor who took part in the rights issue told IFR that the bank had not given any sign of trouble in the offing.
“They made it very clear they wanted to chuck everything at this rights issue so that they didn’t have to come back to the market,” the investor said. “So for them to come back now with losses and gaps they need to fill is close to negligence. It’s pretty bloody awful.”
Last week’s reorganisation was Thiam’s second in the past six months.
He brought equities, fixed income and derivatives under the same roof in October in an effort to boost profits.
Securitised products and credit trading were determined to be profitable but no longer in line with the bank’s long-term strategy.
Credit Suisse now plans to exit European securitised product trading, global distressed credit trading and long-term illiquid funding, with cuts in large illiquid positions in US CLO secondary trading.
The bank said it has reduced CLO secondary exposure by 70% so far in 2016 and has cut its distressed credit exposure by 28%.
“We argued CS needed a Plan B,” the Morgan Stanley analysts wrote.
“The good news is we now have a new one, with commitment to less capital intensity and lower costs. But the bad news is this came after US$1bn of [mark-to-market] losses.” (For more on Credit Suisse’s results, see “Credit Suisse caught out by big positions”.)