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13 February 2020 By Liam Proud

If chief executives were social networks, Credit Suisse’s Thomas Gottstein would be LinkedIn: safe, jargon-heavy and a tad unexciting. Given the spying scandal that has engulfed the $34 billion lender and led to predecessor Tidjane Thiam’s exit, that’s probably a good thing. Yet if performance falters, shareholders may start to miss Instagram user Thiam’s eye for the big picture.

Admittedly, Thiam’s social-media nous was a ruse. At his last press conference on Thursday, he revealed that a recent foray into the photo-sharing site was the work of his communications team. Still, Credit Suisse’s 18% rise in 2019 adjusted pre-tax profit was tangible enough.

Thiam turned around a bank. Its 2019 return on tangible equity was 9%, compared with minus 7% in 2016 – the year after he was appointed. Risk-weighted assets in volatile markets-based businesses account for 28% of the total, compared with 51% in 2015. Pre-tax profit from wealth management, now the bank’s focus, grew at a 15% annual average rate in that period. The departing boss’s undoing was the revelation that long-time associate Pierre-Olivier Bouée organised the surveillance of former wealth boss Iqbal Khan. Thiam says he knew nothing about it.

It’s hard to imagine Gottstein getting tangled up in such a scandal. He has a relatively low profile outside Zurich and spoke carefully from prepared remarks on Thursday – a stark contrast to Thiam’s self-deprecating social-media banter. He has also stated that he doesn’t plan to change the group’s strategy or structure.

That may work if Credit Suisse’s new staid leadership focuses investors’ minds on better performance. Shares trade at 75% of estimated 2020 tangible book value, or 25% below where they theoretically would trade if the bank were to hit its 10% returns target this year, assuming its cost of equity is also 10%. To the extent that concerns over the spying scandal contributed to the gap, Gottstein’s steady hand may narrow it.

The alternative explanation is that investors think performance will deteriorate. Investment banking and capital markets generated a $161 million pre-tax loss last year compared with a $350 million profit in 2018. A continued dive would raise pressure for deeper cost cuts and a potential restructuring of problematic businesses. Gottstein would then have to show that he’s more than just the continuity candidate.


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