Credit Suisse's maneuvering in the Greensill funds scandal reveals a power vacuum at the top of the bank. Future Chairman António Horta-Osório faces a Herculean task.

When Severin Schwan concluded a good two years ago that the next chairman of Credit Suisse (CS) would have to have the experience of running a bank, Ulrich Koerner was out of the running for the post. Apparently, Schwan, in his role as chairman of CS's nomination committee, did not want to repeat the same mistake the bank had already made once: namely when it had wanted to elevate a lawyer to the presidency in 2010.

At that time, the Swiss regulator (Finma) stepped in and demanded that Urs Rohner, the designated candidate, prove himself for at least one year on the board of directors before he could take up the position of chairman. He allegedly lacked the necessary banking experience. Hans-Ulrich Doerig, who died in 2012 and was one of the most loyal managers CS ever had, stepped in as interim president.

Empty Promise

The fact that Koerner, a former CS and later also UBS cadre, did not make the cut because of Schwan's decision was particularly embarrassing for Rohner. The latter had promised Koerner – albeit only verbally – that he would be his successor.

For this reason, Koerner had left UBS, where he was about to reap the fruits of his labor as head of asset management. The division had returned to the road to success. This was the success for which Koerner had had to wait long enough, so long that his reputation as a minister of announcements had preceded him.

With Schwan's rejection of Koerner, Rohner signed off completely on the search for his successor, leaving the board of directors to look for a new chairman under rather suboptimal conditions. As a rule, the outgoing incumbent supports the efforts of the supervisory body.

Power Vacuum

This difficult constellation explains why the search for a suitable candidate was so protracted and only culminated in the appointment of the Portuguese António Horta-Osório, or AHO for short, just six months before the change of office.

The search process was so discreet that even CEO Thomas Gottstein was never really involved, as he admitted last year in a small circle. Thus – rather unplanned – a real power vacuum has formed, which was accentuated by the Greensill scandal that broke out a few weeks ago.

Helplessness and Annoyance

There is no other way to interpret CS's maneuvering in this extremely sensitive and presumably highly costly matter. Nothing at all has been heard from the board of directors in this matter, while CEO Gottstein, after a long period of hesitation, is now, in a mixture of helplessness and exasperation, constantly submitting to investors and stakeholders new changes and restructurings within his bank that leave no doubt about his current excessive demands.

At first, he held on to the division that was subordinate to international asset management (IWM), then the first heads rolled; shortly thereafter, it was said that asset management would be run as an independent division in the future, and recently there has been talk of running the division in its own holding company apart from the bank.

Gottstein deserves credit for this: Who could have guessed that CS would get into such trouble with a hitherto marginal business like supply chain financing? In the meantime, estimates suggest that in the very best case, the major Swiss bank will be able to handle the debacle with a write-off of 50 million francs – in the super-gau scenario, on the other hand, the loss would amount to up to 7 billion francs.

The decisive factor will be how CS can keep shaken investors and customers from suing for damages or keep them quiet.

Missing Answer

Against this backdrop, Horta-Osório will take over as chairman at the end of April 2021, after the annual general meeting, of a bank that looked very different a year ago and is now in a highly fragile state. Many top people are now likely to be primarily concerned with saving their skins – first and foremost the head of risk, Lara Warner, who was in the good graces of Chairman Rohner.

To this day, she still owes a concise answer as to when exactly she first learned of the irregularities in the Greensill affair and how she reacted to them – or not. CS recently let it be known that Warner did not know – «contrary to certain reports» – until February 22, 2021, that the Greensill-related insurance could expire on March 1, 2021. In contrast, Lex Greensill himself said last week, according to court documents, that he had informed senior CS employees, including Warner, of the insurance cover for the funds «in the weeks» leading up to March 8, 2021, the date of the bankruptcy filing.

Scrutiny and Realignment

It is clear that Horta-Osório – in contrast to Rohner, a lawyer – has taken on the mandate at CS in order to first critically scrutinize the bank and then strategically realign it. As the former CEO of Lloyds Bank, where he achieved a turnaround, he is well qualified to do so.

This will be urgently needed, because the revisions mentioned above, which were carried out in the context of the Greensill scandal, do not follow any sustainable logic, but are ad hoc decisions to avert the worst. Or to put it in another way: It must become clear as soon as possible what will happen to asset management.

Dressing Up for Sale?

Under these premises, Koerner is definitely the right man in the right place at the right time. Moreover, CS owed the manager a debt of gratitude after unexpectedly letting him go nowhere in the Rohner succession.

Based on the experience he gained in the slipstream of then UBS CEO Oswald Gruebel during the turnaround of Switzerland's largest bank in 2009, he is now certainly well placed to get CS's asset management back on track – or to spruce up the division for a possible sale – which is certainly an option that Horta-Osório must consider in his general overhaul of CS. If, on the other hand, asset management remains in the bank's business model, CS will sooner or later need a younger, more dynamic CEO for this division.

Horta-Osório's biggest black box for taking office, meanwhile, is Greensill, as long as it remains unclear how much damage CS will effectively have to bear. In the worst case, it could even cost CEO Gottstein his head, simply because he is the bank's chief manager.

Valuable Stopgap

Ten years ago, the then UBS CEO Oswald Gruebel suffered a similar fate. He took responsibility for the fraudulent speculations of UBS trader Kweku Adoboli in London, even though he was not directly to blame at the time. In doing so, however, he saved his reputation, which still benefits him today.

Paradoxically, if Gottstein were to get into trouble in the further course of the Greensill affair, Koerner's experience would make him the obvious choice to fill the gap. This would enable him to reach his goal in a roundabout way. In 2006, he had already recommended himself as the successor to the retiring head of CS, Gruebel. But at that time, the cup passed him by. American Brady Dougan was given preference. The rest is history.