Credit Suisse’s last chance

This is an audio transcript of the Behind the Money podcast episode: ‘Credit Suisse’s last chance’

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Michela Tindera
Earlier this fall, the FT’s Owen Walker was spending his Saturday afternoon sitting in the parking lot of a tile showroom.

Owen Walker
My kids were asleep in the back of the car and my wife was buying some tiles.

Michela Tindera
Owen’s the FT’s European banking correspondent. So that means that even while he’s out on a weekend errand, he’s keeping a close eye on the major banks across the continent in places like France, Spain and Switzerland.

Owen Walker
So I was just sort of idly flicking through my phone on Twitter. I saw a tweet that came up by an Australian journalist. Word for word, it said, “Credible source told me last night an investment bank is on the brink.” So not much detail. Quite vague. And by this point, it had a couple of hundred retweets, and people were suggesting it might be Credit Suisse.

Michela Tindera
At one time, Credit Suisse was considered to be one of the most important and respected banks in Europe. But over the last few years, that reputation has changed. Years of scandal had, by that weekend, sent the bank’s share price to historic lows. Still, on the verge of collapse? Owen thought, no way!

Owen Walker
I know a fair bit about the bank. But later on the evening, this tweet was starting to get a lot more traction. There were tens of thousands of people retweeting it by this point. And there was so much speculation on social media that I did start to sort of think, well, is there anything in this? So I started, you know, messaging a few contacts, few people I knew at the bank, just sort of checking in to see had they heard anything? Did they know what all this was coming from? And I started to get messages from my own colleagues and editors sort of saying, you know, we’ve seen what’s going on on Twitter. Have you heard anything? What is going on?

Michela Tindera
Owen zeroed in on two possible causes of this rumour mill.

Owen Walker
The first was a message sent from Credit Suisse’s chief executive Ulrich Körner to staff on the Friday afternoon, trying to reassure them and saying, there’s no problem here, there’s no liquidity problem. A lot of people on social media said this was very reminiscent of messages sent from the management of Lehman Brothers just a few days before that bank collapsed. The second was the credit default swap market, which is, these are essentially insurance contracts against a company going bust. And the higher the spreads on those derivatives, the more indication that there is a lack of faith in the market and in the financial health of that company. Credit Suisse, those CDs were going through the roof. So people on social media were really putting these two things together and thinking this bank is going down the plughole.

Michela Tindera
As it turned out, Owen wasn’t the only one wondering what on earth was going on.

Owen Walker
I just got on the phone and spoke to various people, various executives at the bank . . . 

Michela Tindera
And that Monday, Owen had a story to report for the FT.

Owen Walker
Which was very much along the lines of, you know, Credit Suisse executives have spent the weekend calling their biggest shareholders and their most valuable clients to reassure them that all this speculation and noise going on on social media is just that, and, you know, they are still a healthy company, admittedly with some problems, but certainly no problems that would see them collapse within a couple of days.

Michela Tindera
At the end of the day, of course, Credit Suisse didn’t collapse. The rumours weren’t true.

Owen Walker
I think, personally, 95 per cent of the speculation was completely ill informed, and it was people who probably know very little about Credit Suisse or very little about banking.

Michela Tindera
Even though these rumours on social media weren’t true, Credit Suisse’s stock fell even further, down nearly 10 per cent the morning after that weekend’s events.

Owen Walker
Credit Suisse is in such a bad place that just a few unsubstantiated internet rumours could send its stock price tumbling and cause clients to pull their money in droves. Now, shareholders really have had enough of all the bad headlines.

Michela Tindera
Recently, the bank’s leadership has been pressured to restructure in a last-ditch attempt to fix its business and image. Owen says this is a make-it-or-break-it moment for Credit Suisse.

Owen Walker
This is a story of a bank which is very much on its last legs. If it doesn’t carry out this significant restructure and this isn’t a successful revamp of the bank, there won’t be many options left for it to stay in its present form. You know, this is a 166-year-old institution, which is the pride of Switzerland, which has its roots in helping the country grow. If this plan doesn’t work out, it could be stripped back, sold on and little more exists than just a name Credit Suisse in the history books in a year or two to come.

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Michela Tindera
I’m Michela Tindera from the Financial Times. On today’s episode of Behind the Money, we’re gonna explain what’s really been happening in Credit Suisse and explore whether it can turn itself around before it’s too late.

Owen, well, welcome to the show.

Owen Walker
Great. Thanks so much for having me.

Michela Tindera
So tell me about Credit Suisse. Why is this bank so important?

Owen Walker
So, you know, Credit Suisse is one of Switzerland’s oldest running banks, and it’s really got that heritage of being a very pivotal part of the Swiss economy. You know, being a Swiss bank, it very much had that privacy, that security that they could offer the world’s wealthiest people. It had a rich heritage in wealth management and then other parts, you know, have that asset management arm and domestic Swiss bank, but also it had this well-regarded investment banking arm as well. And, you know, through the 19th century, through the 20th century, it gradually became much more of an international bank, funding more industry across Europe and eventually into the US.

Michela Tindera
So now we know that those collapse rumours online were just that, rumours. But over the last few years, Credit Suisse has faced this just laundry list of scandals, and Owen, you’ve reported on many of them. It’s fed this image of a bank on the brink.

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Credit Suisse is facing allegations that it has been handling dirty money for decades.

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Damage control measures put in place by Credit Suisse.

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The court said Credit Suisse had not done enough to stop money movements by a Bulgarian drug trafficking ring.

Owen Walker
By the start of 2021, Credit Suisse was reeling from the collapse of two companies with whom it had very close relationships. The first was Greensill Capital, a specialist financing company. And when that imploded, Credit Suisse was forced to close $10bn worth of investment funds that its wealthiest clients had put their money into. The second was Archegos, a family office, and when that collapsed, Credit Suisse suffered losses of $5.5bn, the largest ever trading loss in its history. This really put Credit Suisse in a lot of people’s minds, as, you know, the bad bank of Europe or probably the most troubled bank in the world, really, because it just lurched from one crisis to another and was losing huge amounts of money. People were leaving. They had whole changes of leadership. Share price collapsed.

Michela Tindera
Yeah. So clearly the bank needed to try to navigate its way out of these crises and make up these losses. So in November of 2021, Credit Suisse announced this new strategic plan. What was in that?

Owen Walker
They thought what they would do is they would start to strip back the investment bank a little bit and refocus some efforts on to wealth management. Now, this was a plan that they’d worked on for several months, but by the time it came out, it was fair to say the market felt that it hadn’t gone far enough. The market had looked at it and thought, this is not radical enough. This does not change the way that we see the bank. Now, by the summer, the share price had fallen over 40 per cent for the year and shareholders were getting restless.

Michela Tindera
So that plan didn’t work. And over the summer, Credit Suisse announced that in late October it would release another new strategic plan. However, while everyone was waiting for that plan, those collapse rumours on social media caught fire. Now just last week, Owen interviewed Credit Suisse chair Axel Lehmann on stage at an FT conference. And here’s what Lehmann said about how those rumours played out for the bank.

Axel Lehmann
First, the professional market, institutional investors, you, and other more professional press analysts, came and said Monday afternoon “No, no, this is not a meltdown. That is not possible. Let get some perspective on it”. So the professional market, counterpart the other banks, were not really reacting to it. But it was a real storm. It was a storm in the retail and partially in the wealth management segment, in particular in Asia, where we had really massive outflows for two to three weeks. And since then it completely flattened out and it partially reversed. So the force and the uncontrollable events in the social media storm, it’s uhm . . . that was unbelievable.

Michela Tindera
Owen, how bad did it to get for Credit Suisse in those weeks after that rumour?

Owen Walker
In the few weeks after the rumours, it got pretty chaotic for Credit Suisse. Outflows, which is essentially a measurement of the money that clients of a bank take out of their accounts and in most cases move into accounts of rival banks, now, the level of outflows at Credit Suisse reached over SFr80bn in just the first couple of weeks after those rumours. And in the wealth management business, which is where Credit Suisse’s richest clients sit, they poured 60bn, which was about 10 per cent of the assets in that business. Now, analysts looked at those levels and compared them with what UBS went through during the financial crisis, and they said that those levels were what UBS experienced in the whole year during the financial crisis. So this was huge. This is Credit Suisse, one of the world’s biggest wealth managers, losing a 10th of its assets in just a couple of weeks as a result of these social media rumours.

Michela Tindera
So, Owen, in the weeks following what happened online, it sounds like Credit Suisse is really on the defensive here. I mean, they’re in the middle of seeing these significant outflows and everyone’s waiting on this new strategic plan that’s set to come out. And then finally, the bank CEO and the chair, Axel Lehmann, released this plan in late October. Tell me more about it.

Owen Walker
They were getting pressure from shareholders. They’re basically told this isn’t working. What you announced last year did not go anywhere near fair enough. And if you don’t sort this out in the next six months, we’re gonna push for you to sell yourself on to UBS or someone else.

Michela Tindera
Now, the previous plan wasn’t considered radical enough. What about this one? What’s in it?

Owen Walker
So there are essentially three parts to the new plan. One is a quite severe cost cutting exercise, reducing SFr2.5bn and 9,000 jobs from the bank. The second, which is related, is selling off huge chunks of the investment bank and spinning off most of it into its own separate company. And the third part of it is paying for all of this by raising SFr4bn of fresh capital from investors.

Michela Tindera
OK. Can you tell me a bit more about each of these? Let’s start with the cost cutting.

Owen Walker
So they’re looking to cut costs by SFr2.5bn over the next three years, which is probably about 20 per cent of costs. And that includes cutting 9,000 roles out of the 52,000 global staff. So that’s a pretty big, pretty painful restructuring from a cost base and also from staffing levels. Now, part of those efforts will see the bank really moving out of investment banking in a big way.

Michela Tindera
So what would that look like, selling off large pieces of the investment bank?

Owen Walker
The key piece here that they’ve already announced a sell-off is the securitised products business, which, although is actually very profitable for Credit Suisse and is an area where the bank is a market leader, it is quite risky. But it also requires an awful lot of capital, and capital is a point that the bank is looking to redirect and make it work more in the wealth management business rather than the investment bank. So that’s one area it’s looking to do. And then in order to make these changes, this is, you know, it’s required quite a lot of money to make these changes. So it’s looking to raise 4bn of fresh capital from investors. Some of these are new investors and some are existing investors who are essentially being asked to invest more in the business to fund this fairly radical restructuring.

Michela Tindera
Mm hmm. And part of getting this big capital investment is they’ve decided to get the Saudi National Bank involved. Why did that bank want to invest in Credit Suisse?

Owen Walker
You’ve now got the Saudi National Bank. They are actually more interested in becoming players in the global financial market. So what they are doing with Credit Suisse, they are coming in and they’re investing just under SFr4bn into the business. And at the same time, we’ve reported that the Qatar sovereign wealth fund, which was a large investor in Credit Suisse, already has also decided to increase its stake and become a bigger shareholder in the bank. So I think what you’re seeing here is sovereign wealth funds in the Middle East, seeing this an opportunity to strengthen their influence in a very large western financial institution. But also I think they see Credit Suisse as a means of coming in and investing more in the Middle East and investing in the financial hubs in the Middle East, in Doha and Dubai, and making these places where more people will want to come and set up financial businesses, and they see that very much as something they would like to build out. And Credit Suisse can help them do that.

Michela Tindera
Owen, as we discussed, you know, those social media rumours had real consequences for Credit Suisse. But Axel Lehmann told you he’s optimistic about the future of the bank. Here’s a bit of what he told you on stage.

Axel Lehmann
You know, I have personally a lot of contacts with some of the key clients as executives and also had a lot of, I talked a little bit to our regional managers in Asia, Switzerland but also here in the US. You know, clients, and that’s the good part of the sad story. You know, we had very few clients leaving, and they are still with us. They still continue to do business with us. But, you know, when you have maybe hundred million business or you had a billion business, and then you say, OK, look, oh, I see all that stuff. I might put 300mn or 30mn somewhere else. That money one day, sooner or later, at least in part, will come back. Clients still want us. They still with us. So I have anecdotes from clients. I know that the money will certainly, certainly come back over time.

Michela Tindera
So, Owen, how’s Credit Suisse doing now?

Owen Walker
Axel Lehmann is really trying to spread the message that, that the, the seeds and the green shoots of a recovery are there. And I think if you’re looking at every other part of the bank, if you’re looking at the share price, if you’re looking at, you know, the way the bond markets were acting, I think there’s a lot of expectation that it really can’t get much worse than it is at the minute.

Michela Tindera
Mm hmm. So, tell me a bit more about this.

Owen Walker
In the past month or so since it unveiled its radical restructuring plan, the group has actually had to announce its fourth profit warning of the year, saying it expects that in January to post up to SFr1.6bn of losses for the final quarter. That would mark probably among the worst years in Credit Suisse’s 166 years as a bank. Two months ago, there was a common joke doing the rounds in Switzerland that it was cheaper to buy Credit Suisse stock than a cup of coffee in Zurich. I mean, I think now you’d be lucky to find a bar of, a mini bar of Swiss chocolate that’s cheaper than the share price.

Michela Tindera
What might happen if the bank is sold off?

Owen Walker
You know, there’s often rumours and talk that UBS would buy the bank if it was up for sale. I think that would certainly be the preference of a lot of politicians and regulators in Switzerland rather than having an overseas bank come in and buy essentially the finance sector’s crown jewels. So, you know, there is a very much a feeling, I think, in Zurich that if this plan doesn’t pay off, then there’s only one option, which is to either completely strip down the bank and to sell off into parts or to sell it on to UBS and to kind of create a one dominant Swiss bank which plays out internationally and then maybe a more locally, domestically focused bank, which would be separate from the combined bank. So I think this is kind of the last chance saloon really for keeping Credit Suisse in any kind of single form going forward.

Michela Tindera
When will we know if they’ve been successful?

Owen Walker
I suppose it’s a three-year restructuring plan. So, you know, they would say judge us in three years. I don’t think there’s a lot of patience in the market to judge them in three years' time. I think shareholders, analysts, bondholders, they want to see tangible results in the next six months. They want to see what parts of the business they’re able to sell, what valuations they can get for those businesses, what the financials look like, how far the cost cutting goes, how successful they are in doing this, and to be brutal, they want to see blood. They want to see job cuts, and they want to see the bank stripped down. I think what we’ve had so far is the bank’s executives have shown the plan. But what the shareholders will now want to see is thanks very much. It looks like a plan we can support, but we want to see action. We want to see you carrying this out. And that’s what we will judge you on.

Michela Tindera
Owen, thanks for joining me.

Owen Walker
No problem.

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Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco and Breen Turner. Special thanks to the FT Live team and Stephen Morris. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.