Thiam the one
Credit Suisse has found the type of chief executive that the industry fears, but needs. Prudential boss Tidjane Thiam, who is to replace Brady Dougan in July, has no ties or loyalties to either investment or private banking. And he has a reputation for making bold moves – witness his bid for rival AIA in 2010. It’s a combination that should send shivers not just through Credit Suisse, but through rivals across the City and Wall Street, too.
The business of trading and corporate advisory is stuck in a profitability trap. Firms like Credit Suisse that offer virtually all these services need far more capital than in the past. At the same time, the biggest revenue generator – trading bonds, currencies and commodities – has been steadily declining.
Credit Suisse is an apt poster child for the industry. Its investment bank churned out a return on equity of just 8 percent last year. Strip out various issues from funding costs to legacy assets and that improves, but for the past few years these so-called non-core charges have kept recurring.
Banks from Barclays to Goldman Sachs to JPMorgan are grappling with the same problems. ROE rarely bests 12 percent for even the top performers. But it’s especially stark for the likes of Credit Suisse. Almost half its 25 billon Swiss francs of revenue last year and more than 60 percent of pretax earnings stem from private banking and wealth management. The latter is a good, low-capital business that cranked out a pretax margin around 30 percent in 2014, just ahead of local rival UBS. But the capital-intensive investment bank crowds out much of that performance.
Thiam can approach these problems with a blank slate, buoyed by a record at Pru that has seen the stock treble in five years. Applying a no-holds-barred approach to Credit Suisse would serve shareholders well – as they seem to appreciate, given the almost 8 percent jump in the bank’s stock by midday on Tuesday. It would also, of course, leave thousands of its bankers and traders wondering whether their jobs are safe.
Should Thiam take that route and have even a modicum of success, his new peers on Wall Street and the City of London will be hard pressed to resist following suit.