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Accelerate to re-rate

17 March 2016 By Dominic Elliott

It is five months since Tidjane Thiam set out his strategy for Credit Suisse in a 69-page presentation. Since then, shareholders have seen a negative 42 percent return – worse than at all of his European rivals, and twice as bad as Swiss peer UBS. Thiam’s grand plan was to double pre-tax profit in Asia from 2014 levels and in some areas of wealth management. Events have overtaken him. It’s time for what in bank-speak is known as a strategic acceleration.

Thiam gave himself three years to hit his goals. Two of them look unattainable. In the wealth management division, pre-tax profit shrank 42 percent in 2015, so it now has to treble its pre-tax profit in three years to meet his target. Wealth management brings its own peculiar, unforeseeable risks. A lawsuit filed on March 15 is at least the second to seek damages over allegations that Credit Suisse failed to prevent a former employee laundering money.

Asia too is a tough choice of strategic focus. Even leaving aside the slowdown in China, UBS already has double the investment banking market share of its Swiss rival, and over a quarter more Asian wealth advisers than Credit Suisse is aiming for by 2018, notes Macquarie.

Thiam could help himself out with some simplicity. He doesn’t like return-on-equity targets, but an overall group pre-tax profit target would still be more helpful than the individual divisional ones he has now. If this were set at 6.5 billion Swiss francs for 2018, then Credit Suisse still might be able to make an 11 percent return on equity – which is what analysts forecast for UBS.

Or he could cut more deeply in investment banking. Thiam envisages risk-weighted assets for his trading and corporate finance businesses growing by more than a quarter by 2018. Cut them by a fifth instead, and that 11 percent return on equity could come in three years on a lesser 6.1 billion Swiss francs in group pre-tax profit.

Thiam, who hasn’t run a bank before, was a high-risk choice of chief executive. In his last job running insurer Prudential, one of his first moves was a bold albeit failed bid for Asian rival AIA that, in light of AIA’s subsequent strong performance, looks smart. The most decisive thing about his time at Credit Suisse so far is the fall in its shares. Thiam’s revamp needs a do-over.

 

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