Credit Suisse's Year of Reckoning

The new strategy of Credit Suisse will be put to the test in the first weeks of 2016 already, with the entire year promising to become decisive for the bank – and its chief executive, Tidjane Thiam.

Investors aren't known for their patience: Tidjane Thiam received much praise by the financial services community when he took charge of Credit Suisse last summer and presented his vision with style and verve.

The tailwind since has abated, not least as investors were asked to inject a further 6 billion francs into the business of Switzerland's second-biggest bank. Now Thiam has to deliver.

Results Don't Lie

The presentation of fourth-quarter results will be a first test for the new strategic initiatives. Cunningly, CS already announced it will post a loss on billions of goodwill write-offs.

But the operative results won't lie of course. Will the cost-cutting measures show in the results of the investment bank and in the margins of private banking? What about the capital allocation plan and new business? Are assets under management increasing and is the Swiss business in shape, due for an IPO in 2017?

Thiam Will Take the Blame

The results will be studied carefully by analysts and investors alike. If margins or net new money remain below expectations, or if the investment bank fails to cover for the capital costs – the boss will have to bear responsibility.

Thiam has to take some of the blame for the increase in expectations, simply because of the way he presented his strategy.

Change of Heart

But only part. The board seems to have issued the new CEO with sweeping powers to develop and execute a new strategy and for putting together his management team at will. The same board incidentally, which didn't want to know about a shrinking of the investment banking arm and a capital increase when Brady Dougan was in charge is now supporting Thiam unreservedly.

The change of heart of the board is rather spectacular and fuels expectations. And raises the question of why it hasn't earlier taken action and injected new money.

Thiam's «Stars»

Thiam has plugged the gap – he even seems to have pushed for more money, according to market rumors. But the financial market didn't want to put in more. The CEO also exchanged half his top management and installed his «stars» in key positions, Lara Warner as head of compliance and Iqbal Khan as boss of wealth management.

The growth targets are ambitious: Thiam wants to more than double pretax profit in Asia by 2018 compared with 2014. For the Swiss unit, pretax has to increase by 40 percent and in international wealth management by 60 percent.

Daunting Targets

With margins under pressure, compliance costs soaring and an alert competition the targets seem rather daunting.

And there's no time to lose. The new strategy has to yield in 2016 already, with results visible in the stock price valuation. The recent capital increase showed that the key investors in Qatar and Saudi Arabia didn't pull along as they used to.

Results are needed more than ever – the state fund of Qatar and the Olayan family have invested more than 10 billion francs in CS since 2008.


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