Zurich Shrinking revenues, plus rumors about his transfer fee or hostile takeovers: All of this has left its mark on Credit Suisse boss Thomas Gottstein. During an appearance at a conference of the investment bank Goldman Sachs on Thursday, he slapped an investor across the mouth – he followed his father’s advice, Gottstein said: it’s better not to answer very stupid questions at all.
That investor had asked if there was any truth to the rumors that State Street was planning to take over Credit Suisse. The “Inside Paradeplatz” portal reported on Wednesday about a corresponding plan including a specific share purchase price. State Street also commented on this rumor on Thursday evening (CEST): The Boston-based company said in an e-mail that it was not seeking a takeover or merger with Credit Suisse.
The scolded investor took Gottstein’s answer with humor: “I had to ask that. I hope my follow-up question is more intelligent.” But the episode shows: Gottstein is finding it difficult these days to spread a spirit of optimism in view of the numerous negative headlines.
The investor conference was already under bad omens: On Wednesday, the major Swiss bank announced that it was also expecting a loss in the second quarter. It was the sixth profit warning in the past seven quarters. The reason for this is likely to be a loss in the investment bank.
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Gottstein reassured on Thursday: The profit warning was more of a precautionary measure in the run-up to the conference. “I haven’t given up hope for positive figures yet.” The Credit Suisse share was still clearly in the red on Thursday, at less than seven francs per share.
The dilemma of CS: In the current market environment, the investment bank is not yielding enough to finance the restructuring in the most important business area, asset management. Investments, for example to hire new customer advisors for very wealthy customers, have to be offset by savings elsewhere.
Analyst also expects annual loss for 2022
The Credit Suisse boss announced that he would hire fewer client advisors in the wealth management business in China. He is therefore confident of being able to push the bank’s total costs below the target of CHF 17 billion a year, said Gottstein.
But Vontobel analyst Andreas Venditti warns: “Additional savings are likely to be at the expense of investments in growth and thus income.” Venditti therefore expects Credit Suisse to post an annual loss in 2022.
The seasonal trend in the second half of the year will make it difficult for the bank to remain in the black. What makes competition even more difficult: Credit Suisse’s financing costs are significantly higher than those of the competition.
For example, the yields on credit default swaps with a five-year term are twice as high as those of its competitor UBS. This was already hampering the investment bank’s profitability in April and May. And a trend reversal is not in sight for the time being.
>> Read here: Credit Suisse warns of possible loss in the second quarter
Gottstein also acknowledged that the focus of wealth management on emerging markets is also a drag in the current market environment. Two-thirds of the proceeds are generated in emerging markets. However, Eastern Europe and Russia suffered from the war in Ukraine, and in Asia the lockdowns in China have recently caused earnings to fall.
Instead, the major Swiss bank wants to grow in Europe, especially in Germany. But Gottstein also sees savings potential in Europe: the bank still has booking platforms in Spain and Italy. “There are possibilities for simplifications,” says Gottstein – and thus indicated austerity measures in southern Europe.
Anke Reingen, analyst at RBC Capital Markets, qualifies: “Working even harder on costs is positive, but it takes time.” Thomas Gottstein has little of that, however. The “year of transition” that Gottstein proclaimed at the beginning of 2022 is almost half over.
The plan to take the CEO out of the line of fire through a comprehensive restructuring of the board failed. The personal attacks on Gottstein had recently even increased. Bloomberg recently reported that the head of CS could be replaced as early as 2022.
A major shareholder told Reuters that Gottstein would resign. Chairman of the Board of Directors Axel Lehmann felt compelled to back his CEO. With every profit warning, however, it becomes more difficult to maintain this position.
More: Credit Suisse appears to be considering options to strengthen capital