Credit Suisse shares have lost more than 80 percent of their value over the past two decades. How could this happen, in a world that in other ways has become a much better place?
Until a few years ago, Credit Suisse used to invite journalists to a Christmas dinner. The competition where participants had to predict the value of the bank’s stock in 12 months’ time became the highlight of the annual event. A year later, the winner was personally presented with a share of Credit Suisse by the CEO.
In 1999, I happened to win the competition. The share, which then CEO Lukas Muehlemann (pictured above) awarded me, had a value of 73 Swiss francs ($74) at today’s prices. Twenty years later, this share is worth some 11.65 francs. In other words, the price of a share has declined no less than 84 percent over the past two decades – setting aside the dividends the bank paid intermittently.
Huge Contradiction
How is it possible that the share (pictured left) of a company that has a very significant position economically and also in a wider sense of society, should depreciate so much while our everyday lives and general economic wellbeing increased massively in quality and value? After all, all the CEOs and heads of division of Credit Suisse, every one of which I have met and spoken to at least once, praised their institution for being unbelievably fantastic and customer-friendly.
So there’s a huge contradiction between appearance and reality – to an extent unrivaled by any other business. A businessman told me during the financial crisis that messing up so badly and destroying trust to such an extent and still remaining in business was only possible in banking. He probably was right. But what keeps the discrepancy alive?
Tough Times for Tech
Twenty years ago, when big banking was at its peak, the tech industry was just about to gather pace. New economy was the catchphrase of that period and even if this industry went through tough times, it was nevertheless the period that preceded the emergence of today’s tech giants such as Apple, Google and also Alibaba. What does it have to do with banking though?
At a closer look, there’s quite a bit: while shares of big banks started their slow decline, the tech industry grew in value and importance. The same may apply to other industries as well, but tech is probably the only sector that may render obsolete the financial sector as we know it. This has become more than obvious over the past 10 years.
A Change in Paradigm
Tech firms have become players in more and more areas of finance that previously were the exclusive domain of banks: payment services, securities and exchange trading, mortgages and automated investment strategies. These are all areas where banks earned a lot of money for decades without creating very much added value. The relocation of such activities away from the finance industry will continue – it is irrevocable and will put in question the very existence of universal banking.
And this is an important reason for why the shares of Credit Suisse have lost so much of their value over the past 20 years and why it seems unlikely that they will climb to the highs mentioned earlier – if banks such as Credit Suisse still exist that is. Blaming CEOs for the catastrophic performance of stocks won’t wash because this is a fundamental change of paradigm.
Unpopular Measures a No-Go?
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