Credit Suisse Blow-Ups Give Untested CEO a Crash Course in Risk
15 Dec 2020

Two months after Thomas Gottstein took over at Credit Suisse Group AG following a damaging spying scandal, the new chief executive found himself defending losses the bank had incurred in one of Asia’s most spectacular accounting frauds: Luckin Coffee Inc.

It was only the beginning. From questionable deals arranged for SoftBank Group Corp. to a $450 million hit from an investment in hedge fund York Capital, Gottstein has confronted one setback after the next in his short reign atop Switzerland’s second-largest lender. The losses and scandals, many of which he inherited, have compounded the damage inflicted by the global pandemic and now threaten to plunge the bank to a fourth-quarter loss.

Gottstein, who is due to give investors a strategy update on Tuesday, has moved to centralize risk and compliance in Zurich, simplify the organizational setup and scale back lending growth. He’s started a review of the asset management unit after a series of fund implosions. But by and large, the new CEO has shied away from more decisive moves, arguing the missteps aren’t connected and defending Credit Suisse’s appetite for risk as he seeks to win business from the world’s richest clients.

“Credit Suisse has a very solid credit loss track record both in the periods before Covid-19 as well as in 2020 during the economic downturn caused by the pandemic,” a spokesman for the bank said by email. “This also underscores the strength and resilience of our business model, including and especially our strategy to be the leading bank for entrepreneurs.”

Gottstein declined to comment for this story.

Thiam’s Legacy

A two-decade Credit Suisse veteran, he took over in February after revelations that the bank had spied on employees led to the ouster of Tidjane Thiam. He vowed to restore calm while continuing the strategy of his predecessor, who had scaled back volatile trading and tied the investment bank more closely to the needs of the bank’s wealth management clients, offering bespoke deals or loans against their assets.

Almost immediately after Thiam’s departure, the pandemic exposed some of the risks Credit Suisse had been taking, particularly in extending credit to the rich. In the first nine months, Credit Suisse set aside $1.1 billion for loan losses, more than its larger cross-town rival, UBS Group AG, which has a similar strategy. Its shares have declined about 14% this year, compared with a 2.8% gain for UBS.

While some of that reflects different ways of accounting, Credit Suisse is known to be more flexible than some peers when it comes to lending to rich clients, said people familiar with the matter. In a business where banks typically extend credit against diversified investment portfolios, it will occasionally accept single stocks and collateral that’s harder to value, such as ships and aircraft, the people said, asking not to be identified discussing internal information.

By Patrick Winters, Donal Griffin and Marion Halftermeyer, Bloomberg, 14 December 2020

Read more at Bloomberg

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