February 13, 2020 / 6:22 AM / 12 days ago

Investment bank loss mars Thiam's final act at Credit Suisse

ZURICH (Reuters) - Credit Suisse posted its highest annual profit in nearly a decade on Thursday, but volatile earnings at its investment bank and trading divisions muted outgoing Chief Executive Tidjane Thiam’s swan song.

FILE PHOTO: Switzerland's national flag flies beside a logo of Swiss bank Credit Suisse at its headquarters at the Paradeplatz square in Zurich, July 31, 2019. REUTERS/Arnd Wiegmann/File Photo

The 57-year-old Franco-Ivorian native will leave the Swiss bank on Friday following a spying scandal which clouded the final overview of the turnaround he has led since joining Credit Suisse in 2015.

Thiam said Switzerland’s second-biggest bank would continue to benefit from the bet it made on global wealth nearly four-and-a-half years ago, shortly after his arrival.

“It’s not my job description to make myself indispensable, but to build something that lasts,” an emotional Thiam told journalists and executives gathered at the lender’s Zurich headquarters.

He later referenced public tensions that had emerged over spying in recent months.

“There are differences, within Switzerland, in how people feel about me. That’s life,” he said. “All I can say in conscience is every second, I’ve done the best I could.”

Thiam will be replaced by company veteran Thomas Gottstein, a long-time dealmaker promoted under the outgoing CEO to run the lender’s newly created domestic unit in 2015.

Gottstein on Thursday confirmed his commitment to the strategy initiated by Thiam, describing his predecessor as a “personal friend”.

At 3.419 billion Swiss francs ($3.5 billion), the bank’s 2019 profit was the best since 2010.

However, a steeper-than-expected loss in its investment banking business and a ramp-up in pressure from climate activists, at odds over Credit Suisse’s fossil fuel financing, underscore the challenges which remain for Gottstein.

The 55-year-old, in his first public appearance as designated CEO on Thursday, said that after years of cost cuts the bank was now poised to start reinvesting into its businesses.

“Going forward, I see many attractive opportunities to grow... and this growth should for the first time in a long time also be based on the reinvestment of surplus capital,” he told journalists in Zurich.

Following his appearance, activists gathered around the lender’s Paradeplatz headquarters to demand its divestment from fossil fuels, likening it to a sinking ship.

A CLEAR CONSCIENCE

Thiam spent much of his time at Credit Suisse trying to put the lender on a more stable footing, slashing costs and exiting riskier and more capital-intensive investment banking activities.

But his legacy will be defined by the spying controversy which saw Credit Suisse, one of the highest-profile names in European banking, admit to snooping on two former executives.

The bank blamed the espionage on a rogue operation run by one of Thiam’s closest lieutenants, with both the bank and Thiam himself saying the CEO knew nothing of the activities.

Facing the press for the last time as CEO, Thiam said he was leaving with a “clear conscience”, though he was apologetic for the scandal.

“When you lead such a complex organization there are always things one could do better. I’ve expressed regrets in writing over recent incidents. I am very sorry.”

Thiam stands to collect as much as 30 million Swiss francs following his resignation from the bank, two people familiar with the matter said.

Even with its recent restructuring, Credit Suisse is facing a tough operating environment with more competitors now focusing on wealth management, ultra-low interest rates and the threat from passive investing.

The bank lowered its 2019 and 2020 profitability targets in December, blaming a drop in dealmaking, negative interest rates and global trade tensions.

At 9%, the bank’s return on tangible equity (RoTE) for 2019 matched the lowered expectation of above 8% it flagged in December. It had previously targeted 10-11%.

Over Thiam’s tenure, operating costs have fallen by more than 20% while net revenue has shrunk nearly 13% since 2014, the last full year before his arrival in July 2015.

That has helped the group steadily increase profitability after three consecutive losses in the first years of restructuring, hitting its best cost/income ratio since 2010 last year.

But Credit Suisse is still contending with volatility in its Global Markets trading division and in its investment bank, which posted a 162 million franc loss on the back of a struggling mergers and acquisitions business and low bond underwriting volumes.

Executives said they now saw the investment bank returning to profit in 2020 after a strong start to the year.

The only divisions to have grown revenue over former Prudential boss Thiam’s tenure have been International Wealth Management (IWM), a standalone unit managing money for the rich outside Asia and Switzerland, and the Swiss business previously under Gottstein.

Slideshow (2 Images)

Following a tough start to last year, International Wealth Management saw private banking revenues pick up in the final quarter.

But overall wealth management inflows of 23.1 billion francs across Credit Suisse were well below analysts’ expectations of 28.7 billion francs for the year.

The bank’s global markets trading division, which has eked out very narrow profit margins in recent years, ended the year on a high, with a 73% surge in bond trading volumes in the fourth quarter and a 10% rise in equities.

Editing by Michael Shields, Christopher Cushing, Jan Harvey and Carmel Crimmins

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