A new CEO for Credit Suisse

This is an audio transcript of the FT News Briefing podcast episode: A new CEO for Credit Suisse

Jess Smith
Good morning from the Financial Times. Today’s Wednesday, July 27th, and this is your FT News Briefing.

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Europe’s scandal-prone lender, Credit Suisse, is getting a new chief executive. Inflation is forcing consumers to adjust and consumer goods companies are feeling the pressure. In Argentina, people are desperately swapping their pesos for dollars and finding all kinds of ways to do it.

Lucinda Elliott
You send a WhatsApp message to someone, they tip up at your flat with the dollars or they pop it into an offshore account.

Jess Smith
I’m Jess Smith, in for Marc Filipino, and here’s the news you need to start your day.

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Credit Suisse CEO Thomas Gottstein is set to leave the bank. His departure marks the end of one of the most tumultuous periods in the bank’s history. It comes at an awkward time but Credit Suisse has tapped a replacement. Here’s the FT’s European banking correspondent, Owen Walker.

Owen Walker
So Ulrich Körner is going to step in as CEO. He is head of the asset management business and until a couple of years ago was head of the asset management business at arch-rival UBS. So he’s a Swiss national. He’s probably to be seen as a safe pair of hands. That was very much Gottstein’s calling card, if you like. That was how he was presented. So we’ll see if this is more of the same.

Jess Smith
So Owen, was Gottstein’s departure a surprise? I mean, he presided over a lot of drama at Credit Suisse.

Owen Walker
I suppose if you step back a bit, it’s not really a surprise he’s going. The timing is very strange because they are currently looking for a new chief financial officer. The chairman, he’s only been in place for just over six months. It’s an entirely new executive team and a relatively new board, as well as lots of change everywhere. So for the CEO to be going at this point just really highlights the desperation and the chaos really going on at Credit Suisse.

Jess Smith
So how do you think Gottstein’s tenure at Credit Suisse is going to be remembered?

Owen Walker
I mean, I think if you’re charitable to him, he’s a guy who was thrust into this role at a time when his predecessor left under a bit of a cloud. He came in just before the, when Switzerland entered Covid lockdowns, and then last year just proved to be an absolute disastrous year for the bank. A succession of scandals, two in particular around Greensill and Archegos, that will be really his legacy. You know, I think it’d be hard to say he was personally at fault for either of those two. They just happened to come about when he was chief executive. And then a whole slew of historic scandals came to a head under his leadership as well. And partly that’s because when he came into the role, he wanted to address a lot of these things. But it did mean, you know, there was rarely a week went by without very negative headlines around the bank. So his legacy will be the CEO of probably the worst period in the bank’s history.

Jess Smith
That’s the FT’s European banking correspondent, Owen Walker.

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Retail stocks dragged down Wall Street yesterday after the big US retailer Walmart issued its second profit warning in ten weeks. On top of that, a leading index of US consumer confidence fell for the third month in a row because of higher fuel and food prices. Here’s our US business editor, Andrew Edgecliffe-Johnson.

Andrew Edgecliffe-Johnson
We are seeing a message coming out of a lot of the consumer goods companies and the retailers who stock their products that consumers, particularly those more price sensitive consumers, are starting to trade down. You’re starting to see own brand products do better than some of the more premium branded products. At the same time, the more well-off consumers continue to spend. We also had very strong earnings this week from LVMH, the giant luxury goods group.

Jess Smith
OK. So we have people at the lower end of the income scale who are forced to pull back more, but others are still spending. What’s the broad picture right now for US consumer spending?

Andrew Edgecliffe-Johnson
Up until this week, I would have said that economists are struggling to read the US consumer because we’ve had such mixed signals from different income brackets. I think the news from Walmart might tip the balance a little toward saying that we are now seeing signs that higher inflation, rising interest rates, which raise the costs of people’s mortgages and other loans, are now starting to weigh on consumer demand. The one bright spot of that is that this might make the Fed’s job a little easier. If it signals that the demand has been part of driving up prices, this year may actually be starting to cool.

Jess Smith
Andrew Edgecliffe-Johnson is the FT’s US business editor. Thanks, Edge.

Andrew Edgecliffe-Johnson
Thanks for having me.

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Jess Smith
Argentina’s currency, the peso is collapsing and Argentines are flocking to the black market to exchange their pesos for US dollars. It has to do with inflation, the economy and some political uncertainty. To find out more about what’s going on, I’m joined by the Fed’s Lucinda Elliott. Hi, Lucinda.

Lucinda Elliott
Hello there.

Jess Smith
Why is there such a scramble to get rid of pesos?

Lucinda Elliott
Well, traditionally Argentines stampede to ditch their pesos when there’s a mix of economic uncertainty, high rates of inflation, rising demand for dollars, and therefore rising prices on the black market. And this is what we’ve seen this particular run that we’ve seen in July. Everyone who can in Argentina, from florists to lawyers, are rushing to convert whatever peso savings they have into more trustworthy and stable currencies like the US dollar or even crypto coins, because they fear that the economy is about to get a lot worse before it gets better.

Jess Smith
So why are people going to the black market and not to a bank or official foreign exchange?

Lucinda Elliott
The reason they go to the black market is because the central bank simply doesn’t have dollar reserves to give customers because the country’s been cut off from international markets and financing since Argentina defaulted. And that’s made it virtually impossible for people to get their hands on dollars in the normal way. You were limited to exchanging up to $200 equivalent a month, and if you go to a bank for a traditional money changer, you’ll get that sum at the official exchange rate, which at the moment is less than twice the value of what dollars are really worth day to day. So your options are to either go in person to a traditional cueva or cave as they’re known, which is a rather dingy looking, unmarked bureau de change office that converts pesos and dollars at more favourable rates. Or what’s more common in the digital age is that you send a WhatsApp message to someone who will exchange your money. They tip up at your flat with the dollars or they pop it into an offshore account.

Jess Smith
So it’s like a digital black market. But Lucinda, going back to why people are so desperate to get rid of their pesos, I mean, part of it is spiralling inflation, as you reported, but also earlier this month, the economy minister Martin Guzmán abruptly resigned. Can you explain why that was so destabilising?

Lucinda Elliott
Martin Guzmán was considered the last close ally of the president and a figure who gave the current administration some level of credibility. And his exit has basically robbed the government of its only credible minister. And that’s when you get this kind of frenzy to sell pesos that might be worth something different tomorrow what they were yesterday.

Jess Smith
What’s the broader impact on the economy of all these people selling their pesos?

Lucinda Elliott
Well, when everyone starts selling or dumping their pesos, that inevitably means that there are many more circulating and exchanging hands, and that will lead to higher rates of inflation. Economists now forecast that inflation in the months of the month of July since the finance minister Guzmán left, is set to hit a monthly rate of 7 per cent, taking that overall annual figure possibly beyond 90 per cent this year. Unless, of course, the government intervenes in some way or there are some major reforms announced to try and bring price rises down. Most analysts, however, don’t see that happening in the short term, partly because Argentina is about to enter a presidential election year in 2023. So this government will be less willing to hit voters where it hurts, even if it will bring down inflation. In fact, one commentator described to me this weekend over dinner that it’s like the Peronist government is driving a car without knowing the destination. They’re simply trying not to crash the vehicle. And more and more, it feels like Argentines are bracing themselves for that possible car crash, which sadly, they’ve seen many times before.

Jess Smith
That’s the FT’s Lucinda Eliot in Buenos Aires. Thanks, Lucinda.

Lucinda Elliott
Thanks for having me.

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Jess Smith
Before we go, we’d like to make a correction. Yesterday in our podcast, we stated that the UK left the European Space Agency when actually the UK remains a full member of the ESA, which is a non-EU organisation. We regret the error and removed it from the podcast. You can read more on all these stories at FT.com.

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This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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