Credit Suisse con­fu­sion on costly trades adds to CEO's woes

The Pak Banker - - FRONT PAGE -

Credit Suisse Group Chief Ex­ec­u­tive Of­fi­cer Tid­jane Thiam dropped a bomb­shell on in­vestors: Caught off guard by a buildup of illiq­uid trad­ing po­si­tions, the CEO said the bank will prob­a­bly post a sec­ond straight quar­terly loss as it un­winds the trades and deep­ens cuts at that busi­ness. Thiam, less than two months af­ter the bank dis­closed losses on the po­si­tions that led to the big­gest trad­ing rev- enue drop among ma­jor banks, on Wed­nes­day said that some of them were built un­be­knownst to man­age­ment in what he de­scribed as "un­ac­cept­able" prac­tices. Yet within hours, he said the traders were op­er­at­ing within their lim­its, which may have been too high.

The rev­e­la­tions raise ques­tions about what se­nior man­age­ment should have known when the firm set out its strat­egy to trans­form the bank in Oc­to­ber -- and when it later tapped in­vestors for an ad­di­tional 6 bil­lion Swiss francs ($6.2 bil­lion) to push through the over­haul, which Thiam said he's now re­tool­ing in part be­cause of the sur­prise losses.

"I wouldn't fault the CEO for not com­pletely un­der­stand­ing the ins and the outs, but the buck stops with the CEO," said Ron­ald Colombo, a law pro­fes­sor at Hof­s­tra Univer­sity and for­mer coun­sel to Mor­gan Stan­ley. "The CEO has to have a team of trusted ad­vis­ers who col­lec­tively un­der­stand what's go­ing on."

Credit Suisse shares slid 3.3 per­cent to 13.98 Swiss francs, the sec­ond­worst per­former in the 39-mem­ber Bloomberg Europe Banks and Fi­nan­cial Ser­vices Index. The stock has tum­bled 35 per­cent so far this year, al­most twice as much as the index.

Thiam, 53, al­ready was strug­gling to re­store in­vestor con­fi­dence. In Fe­bru­ary, the com­pany posted its big­gest quar­terly loss in seven years. Its shares were down 34 per­cent this year be­fore this week's ad­mis­sion. The stock gained less than 1 per­cent on Wed­nes­day as he pledged to make even deeper cost cuts, elim­i­nat­ing an ad­di­tional 2,000 jobs this year. The global mar­kets unit, which houses se­cu­ri­ties trad­ing, will lose money in the first quar­ter as rev­enue drops as much as 45 per­cent from a year ear­lier, Credit Suisse said. Hold­ings of dis­tressed debts, lever­aged loans and se­cu­ri­tized prod­ucts have trig­gered more than $250 mil­lion of write­downs in the pe­riod, af­ter about $500 mil­lion of losses in the fourth quar­ter.

On a con­fer­ence call, an­a­lysts pressed Thiam on how the bank could be caught off guard by those as­sets -- and pushed him to spec­ify which em­ploy­ees should be held ac­count­able. Thiam said the scale of the po­si­tions "was a sur­prise to a num­ber of peo­ple and was not a widely known fact" within the com­pany. He de­clined to name re­spon­si­ble ex­ec­u­tives, broadly re­as­sur­ing lis­ten­ers that "there have been con­se­quences," and that "we have dealt with it."

That may not be enough to quell out­siders' con­ster­na­tion. "Such de­flec­tive state­ments beg the ques­tion, where was se­nior man­age­ment over­sight?" said Mark Wil­liams, a for­mer Fed­eral Re­serve bank ex­am­iner who teaches risk man­age­ment at Bos­ton Univer­sity. "Ei­ther trades were fraud­u­lent and traders should be fired or se­nior man­age­ment should take re­spon­si­bil­ity for al­low­ing ex­ces­sive risk-tak­ing to hap­pen. To sim­ply say ' we were out of the loop' is not ac­cept­able." For Huw van Stee­nis, an an­a­lyst in Lon­don with Mor­gan Stan­ley who asked Thiam about the losses dur­ing the call, ques­tions about "ex­e­cu­tion and risk man­age­ment will over­hang plan B," ac­cord­ing to a note to clients on Thurs­day.

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