Harris Associates, once the Swiss bank's top shareholder, is getting rid of its entire stake, marking the end of a long and difficult relationship. Will things get any better with the new owners?

The decision by Harris Associates to sell all its shares in Switzerland's second-largest bank is clearly another setback. But it is also not very surprising.

There were signs it might happen in January when the bank's longstanding investor's stake fell below the requisite public disclosure threshold of 3 percent. Harris partner David Herro indicated then that the investment company had not fully participated in Credit Suisse's capital increase, and that this had diluted its remaining stake at the time.

October Decision

That, however, was only partly true. Its lukewarm participation then turned out simply to be a first step. It was clear that patience at Harris Associates was wearing thin and its excuse that the decision was related to the bank's current reorganization was not particularly convincing.

According to the «Financial Times» (paywall), Harris decided to divest in October immediately after the capital increase.

Sanctimonious Gesture

Looking at it from that perspective, a recent statement of confidence by Harris to chairman Axel Lehmann in the Swiss media appears sanctimonious in hindsight.

Using that cover as a smoke screen is another example of how contradictory many of Herro's actions were. Maybe he was thinking that a few nice friendly gestures to the bank's management would help him sell the remaining shares at a good price.

Significant Loss

That could have been the case in the short term for the investment management subsidiary of Natixis. But their impact soon dissipated into thin air. At the end of last week, on Thursday, Credit Suisse shares fell to another all-time low of 2.50 francs. In fact, they barely reacted to the announcement Harris was getting out on Monday after opening at 2.72 francs.

Harris first bought Credit Suisse shares in 2002 and sold them before the 2008 financial crisis for between 60 and 70 francs. In 2009, it got back in at 23 francs and kept its faith in the bank, and its fluctuating management, until now. 

Harsh Criticism

Lehmann's predecessor Urs Rohner bears much of the responsibility for the current state of the bank and Herro even considered disposing of the bank's shares when he stayed on for an extra year in 2020.

Even though he didn't want to blame him for absolutely everything, Rohner did manage to destroy value at an almost unbelievable rate during his term.

Investment Bank Frustration

According to the «Financial Times», Herro is particularly frustrated about the costs and limited transparency of the investment banking spin-off into CS First Boston under a former member of the board Michael Klein. He was also unhappy about the limited gain from the securitized products group sale to Apollo, a private equity firm.

In August, Harris, then still the bank's largest shareholder, indicated that restructuring the investment bank's business would take another one to two years.

Source of Disturbance

The current sale seems to imply that Harris and Herro do not trust the bank's current management to turn things around.

The investment company has already pictured what it expects will happen. More businesses will be sold. By implication, that means wealth management, asset management, and its main Swiss unit, the latter of which is considered to be its crown jewel.

The former shareholder was never quiet about criticism. But few listened. That is why he was considered to be a troublemaker who was constantly trying to disavow the bank's leadership team. Things are likely to become much quieter now that he is gone, which could turn out to be something positive.

New Power Center

But it will also lead to a changing of the guard when it comes to major shareholders, with the two biggest investors from the Middle East now likely to set the tone in the future. Saudi National Bank bought a stake of about 10 percent last year by participating in the capital increase while the Qatar Investment Authority raised its position to 7 percent at the same time.

No one knows what will make this new power center tick, at least not publicly. The two states by themselves have grown apart since the Arab Spring in the early 2010s.

The conflict came to a head in 2017 when Saudi Arabia isolated its smaller neighbor with a large-scale blockade. Qatar, however, stood firm, and relations were again normalized and the measures relaxed in 2021.