Industry observers are stunned to see the fall of once-proud Credit Suisse. What is in store for the near future?
Rumors are circulating that Credit Suisse will be taken over by the U.S. firm State Street, a company with precious little in common with the activities of the Swiss bank. While such a transaction could be considered complementary, it is far-fetched to say the least. Moreover, people familiar with the situation stress there is no truth to the rumor.
One expects the bank's board to be annoyed at such speculation which led to a sharp rise in Credit Suisse shares Wednesday. As soon as it becomes clear this is just a rumor, the share price is likely to plummet all the more which is, understandably, not in the interests of the bank.
A Peculiar Situation
In what it has billed as a «transition year,» Credit Suisse will continue to work on an emergency strategy aimed at the prospect of a turnaround. To be sure, this is not an easy situation for CEO Thomas Gottstein who finds himself in a rather peculiar position.
Regarded as one of the «old guard» at Credit Suisse, his tenure is tainted by the fact that he is at least in part responsible for the bank's myriad misdeeds over the last few years. With Gottstein at the helm, the bank suffers a credibility problem which culminates in an issue of company culture. In other words, the bank has lost the spirit and culture of its founding father Alfred Escher.
And so he remains the proverbial captain of the ship because a replacement could lead to even more turbulence and shocks within the bank.
Radical Measures Needed
In light of this, fundamental changes are needed at Credit Suisse, regardless of whether Gottstein and his management team succeed in convincing investors of their course at an investor day on June 28. Given the mood in the financial markets unlikely to brighten substantially with the war in Ukraine, spiking inflation, rising interest rates, and the threat of recession in some economies, the starting position remains bleak.
Therefore, partly cosmetic strategic adjustments announced last fall and refined in subsequent months will by no means be enough to lead Credit Suisse out of its misery. Ultimately, only radical measures will be needed as has often been the case in the Swiss financial industry. This was the case during the mortgage crisis in the 1990s when various banks were sacrificed or the merger of Union Bank of Switzerland and Swiss Banking Corporation which formed today's UBS.
Creative Destruction
What was previously inconceivable has nevertheless come to pass and proved to be groundbreaking for the further development of the industry. Against this background, there is no way around the break-up of Credit Suisse. Accomplishing this depends on the management capacities within the banks, direct competition from UBS as well as the goodwill of the authorities in Bern, and the M&A demand in the financial markets.
Speculating on the isolation of a sale of the asset management division or liquidation of the investment bank is not enough. The future of Credit Suisse, a systemically important bank for not only Switzerland, must be decided as a whole with shareholders and stakeholders involved.
