LONDON/ZURICH: Credit Suisse investors want answers from CEO Tidjane Thiam about his turnaround plan in the wake of $1 billion of unexpected trading writedowns at the bank, which has lost more than a third of its value since he joined 10 months ago.
Thiam joined last July from Prudential, with investor hopes high that he could repeat the successful Asian expansion strategy he oversaw at the British insurer and that his modest banking experience would bring fresh perspective.
But the 53-year old is expected to receive a lukewarm reception at the bank’s annual investor meeting in Zurich on Friday.
Confidence in his ability to revive the bank’s fortunes was shaken when he said he only discovered the scale of the bank’s risky credit trading positions days before its fourth-quarter results in February, when writedowns were taken.
That added to concerns about the bank’s wider strategy.
Major shareholders have backed it, but some smaller investors and analysts are worried about Credit Suisse’s plans to expand in Asian wealth management just as Chinese growth is slowing.
Some fear Thiam’s targets are too optimistic, including one to more than double pre-tax income from Asia Pacific in 2018.
“He is trying to achieve some tricky things and confidence in him is low. He needs to show a couple of good results to restore confidence, and we know the next quarter won’t be great, they are already saying so,” said Filippo Alloatti, senior analyst at Hermes Credit. “A short period of time won’t give him the results he is seeking.
I think the thing Thiam needs right now is luck.” Switzerland’s second-largest bank has seen its share price fall around 40 percent since Thiam started, lagging its bigger rival UBS and underperforming the European banking sector index, which has lost about 25 percent.
The issue of executive pay a hot topic following high-profile protest votes at recent annual meetings of BP , Smith & Nephew and Anglo American is also expected to feature on Friday.
The pay votes will likely gain the necessary investor backing but support is expected to waver after some shareholder advisory groups questioned the size of Thiam’s bonus, despite him having already asked the board to cut it by 40 percent.
He received a bonus of 2.86 million francs ($2.96 million) for his six months in the job last year, taking his total cash and share awards from the bank in 2015 to 18.9 million francs – the bulk of which replaced awards lost since his move from Prudential.
Advisory groups Ethos, Glass Lewis and zRating recommended investors vote against the company in some or all of the four binding votes over proposed pay for top executives. Ethos recommended that no bonuses be paid to top management at all, while the others oppose parts of the bonus packages.
Credit Suisse said it respected shareholder democracy. “It is the right of every shareholder to form his personal opinion on every agenda item and to discuss it publicly,” a spokeswoman added.
Like its rivals, Credit Suisse has been hurt by tighter regulation, and volatile global markets that have reduced profitability of key investment banking business lines such as trading and advisory.
Thiam’s untimely grasp of trading liabilities, coupled with worries about execution of the business plan in this tougher environment, have re-opened debate about his suitability for the turnaround role.
“That’s one of the downsides in hiring someone who might be brilliant but doesn’t have 15, 20 years experience in this business,” said one of the bank’s institutional shareholders, who declined to be named because of the sensitivity of the issue.
“People had concerns about that at the beginning and this (being caught out by the scale of the trades) certainly doesn’t help.”
Despite presiding over the surprise writedowns and the bank’s full-year loss in eight years in 2015, some investors have given Thiam their backing.
“Now that he has made all the set-up for the new strategy, he has to carry on and I don’t think it would be right to make a judgment so early,” said Vincent Kaufmann, CEO of Ethos, which holds Credit Suisse stock in an index fund.
Thiam has said he and other senior bank officials were unaware of the size of the positions behind the writedowns but that no trading limits had been breached or trades concealed.
On Feb. 4, the markets division reported an adjusted pre-tax loss of 658 million Swiss francs for the fourth quarter, in which it racked up $633 million in writedowns on illiquid trades, positions that are not easy to sell out of.
A further $346 million in writedowns followed in the first quarter as of March 11, the bank disclosed on March 23.
Some investors have pointed to the risk of possible legal action against the bank if any shareholders believe they were not adequately informed about the scale of the illiquid trading book before November’s 4.7-billion Swiss franc capital-raising.
“I don’t think Credit Suisse will be able to move on from this as quickly as they might like. I think there’s a real chance of litigation by shareholders,” Guy de Blonay, fund manager at Jupiter Asset Management, which manages Credit Suisse stock.
Responding to request for comment on possible litigation, Credit Suisse said: “We have nothing further to add than what we disclosed on 23 March. In connection with our capital increase in November 2015 we published a prospectus that contained all relevant information and relevant disclosures.”
Copyright Reuters, 2016
Courtesy : BRecorder