Tidjane Thiam forced to leave Credit Suisse after board fight
In the early morning hours of Friday, 7 February, the Zurich-based bank Credit Suisse announced the departure of its Franco-Ivorian managing director, Tidjane Thiam.
It thanked him for his “enormous contribution” but failed to mention his ongoing conflict with the bank’s board of directors.
The British and European financial press were caught napping, having bet on another victory — or at least a reprieve — for Thiam remaining at Credit Suisse.
The financier, who has been at the helm of the Zurich-based bank since March 2015, had received the support of several of the group’s institutional shareholders at a time when the market was flooded with rumours about his imminent departure.
The fund managers Harris Associates LP (between 5% and 8% of Credit Suisse’s capital) and Silchester International Investors (3.03%) publicly sided with him, against a possible eviction by the board of directors of Switzerland’s second-largest bank (behind UBS, with CHF 1,347 billion [$1,347 bn] in assets under management, revenues of CHF 21.6 billion [$22,6 bn] and a profit of CHF 2 billion [$2,05 bn] in 2018).
Neither informed nor involved in supervisory operations
The most recent friction between Tidjane Thiam and the board, chaired by business lawyer Urs Rohner, concerned the espionage scandal that engulfed the Zurich colossus in 2019.
Pierre-Olivier Bouée, head of operations at Credit Suisse and Thiam’s right-hand man, was fired on suspicion of “surveillance” operations on two former executives of the bank: Iqbal Khan, former head of wealth management recruited by rival UBS, and Peter Goerke, former head of human resources.
An external investigation by the Swiss law firm Homburger AG found Thiam had neither been informed nor involved in the initiation of these operations, but the case shook the Zurich market and tarnished the reputation of Thiam and the bank.
Tensions had been running high between the Swiss bank and the former Ivorian minister, however, long before this episode. Thiam, who trained at École Polytechnique and has an MBA from INSEAD, worked for Mckinsey and British Prudential, before joining the bank.
Upon arrival, he initiated a vast restructuring plan providing for “a reallocation of resources away from certain non-core activities (largely investment banking), and reinvestment of these saved resources into wealth management, largely internationally,” said Claudia Nelson and Konstantin Yakimovich, of Fitch Ratings.
Thiam reduced the investment banking activities, the group’s traditional cash machine, believing it left the company exposed to sanctions and reputational risks. The shift, however, did not go down well with the management teams, or the Board of Directors.
Net losses over the first three years
During the implementation of this strategy, Credit Suisse had a string of negative results and poor stock market performances, which made headlines on the European financial markets. Since a peak at the end of July 2015, the shares have lost more than half their value in Zurich.
The haemorrhage at its competitor UBS, although severe, have been less drastic: a drop of around -40%. The first three years of Thiam’s mandate ended in net losses of CHF 2.94 billion [$3,01 bn] in 2015 to CHF 948 million [$971 m] in 2017.
In addition, on 28 February 2019, the government of Mozambique filed a complaint with the High Court of Justice in London against the bank, accusing it of “direct involvement” in the design of the financial packages that plunged the country into debt. The case dates back to 2013, before Thiam became head of the bank, but weakened the institution.
However, under Thiam’s leadership, Credit Suisse also managed to reach agreements with the US courts in several proceedings concerning embezzlement cases dating back to the 2008 financial crisis, agreeing in particular to pay a fine of USD 5.3 billion in 2017.
These sanctions placed a heavy burden on the bank’s profits, but also brought the interminable legal proceedings in the United States to an end.
Return of Profits
The rebalancing of the bank’s activities was reflected in its results.
The private banking business accounted for CHF 2.94 [$3.01 bn] billion in pre-tax profit in 2018, on revenues of CHF 8.5 billion [$8.71 bn], representing a profitability of 35%, compared with just 7% for investment banking (CHF 614 million [$629 m] in pre-tax profit on revenues of CHF 8.94 billion [$9.14 bn]). CHF1.1 billion [$1.13 bn] (43% margin) and asset management $372 million [$389 m] (24% margin).
After three years of net losses, the Group posted a net profit of CHF 2 billion [$2,05 bn] in 2018. Its return on assets reached 5.6% last year (compared to 8.6% for UBS), compared to -2.2% in 2017.
“Non-core losses are declining and major conduct issues have been resolved, reducing uncertainty,” Fitch analysts said a few months ago, anticipating “an improvement in earnings from 2019 onwards, given the good results achieved in reducing non-core assets and costs”.
“We expect the reduction in non-core asset losses and financing costs to contribute approximately $1 billion to Credit Suisse’s pre-tax earnings,” they added.
These results convinced several institutional shareholders to express their support for Thiam, even going so far as to demand the withdrawal of PCA Urs Rohner to end the tug-of-war between the two men.
Such public interventions by investment funds in corporate governance are common in the United States, but in Zurich, discretion is the order of the day.
Forced to choose publicly between the president of Credit Suisse and the CEO that the latter had recruited in 2015, the bank’s board of directors opted for the latter and appointed a veteran of the firm as its replacement CEO, Thomas Gottstein.
He joined the company in 1999 and was appointed in 2016 as head of the national subsidiary. An altogether 100% Swiss choice.
Thiam, the first African to head a financial institution the size of Credit Suisse, now will have options.
There is also talk of entering the world of Ivorian politics, but he said he was determined to have “no political activity”.
A earlier version of this article erroneously suggested Tidjane Thiam was destined to head the IMF