Credit Suisse’s outsiders need to be brave, brutal

Credit Suisse Group AG’s poaching of Dixit Joshi from Deutsche Bank AG to become its new chief finance officer means the Swiss bank now has outsiders in three top executive roles. They all have plenty of experience fixing problems in their former roles.
The new leadership team should have the cool ruthlessness to make unbiased decisions about what Credit Suisse should and shouldn’t be doing under its third strategic review since 2015. But that doesn’t mean radical changes will be any easier to pull off.
The big call remains shrinking the investment bank dramatically, quitting large parts of its US-focused and capital-hungry debt origination and trading businesses, and focusing much more on wealth management. That’s not impossible to do although previous leaders have flaked. Now, with markets in the doldrums, the path of interest rates likely higher and inflation more volatile, it’s a job that will be more costly than if Credit Suisse had done it last year when its specialties, structured credit and private-equity-deal financing, were booming.
Alongside Joshi’s hiring, Credit Suisse has already snared Francesca McDonagh, outgoing chief executive officer of Bank of Ireland, who will now become group chief operating officer. Chairman Axel Lehmann also made the sudden decision to replace Credit Suisse veteran Thomas Gottstein as CEO last month, bringing in fellow UBS Group AG alumnus Ulrich Koerner.
The chair and his three top executives will be free of any historic attachments to any of the businesses which Credit Suisse has long struggled to make a coherent whole. Lehmann said last month at the bank’s woeful second-quarter results that the “badly diversified” firm would be reshaped into an advisory-led investment bank focused on earning fees from its smarts rather than renting out a large balance sheet. It will need significantly less capital and focus on work that is most relevant to its private banking and wealth businesses and to key corporate clients.
By definition, this ought to mean finding a new home or different structure for the securitized products and US-based leveraged-finance businesses. I remain skeptical. The leadership could cut the cord swiftly, which will very likely cost shareholders in the short-term but lead more quickly to a clearer picture of what Credit Suisse is and what profits it can produce. Mind you, investors already put a zero or even negative value on the investment bank, according to analysts. Successive executive teams have failed to make the jump because these businesses produce significant revenue and because the executive who likes to dismantle empires rather than rule over and expand them is always a very rare kind.
The worst option would be to continue stumbling along the same path of lukewarm commitment to a broad-service investment bank that isn’t big enough to compete with the largest US players, or small enough to be truly nimble. This risks a slow bleed of revenue loss with a higher chance of stubborn costs left behind. It’s the trap that Deutsche Bank couldn’t escape for many years.
In Joshi’s time at Deutsche Bank, he saw first-hand how not to change a bank and then later, under Christian Sewing’s leadership, the benefits of finally taking the hard decisions.
—Bloomberg