Long-termism: New Buzzword from Thiam & Co

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When the markets penalize quarterly results with a massive sell-off, Swiss banking bosses are sudden converts to the long view. In this they are firmly in line with the trend. But will the new creed favour their financial institutions?

Following the full-year loss of almost three billion francs, posted two weeks ago, many Credit Suisse shareholders took a one-way ticket towards the exit. They dumped the shares of the reeling bank on the market in such volumes that the share price dipped at times to its lowest level in more than 20 years.

The turn of events would have made any banking CEO sweat, but Credit Suisse boss Tidjane Thiam amazingly kept his cool. It would be the biggest mistake now to be distracted from the long-term strategy by a short-term setback, he told journalists Thursday. Thiam went so far as to say that bosses who manage their companies with an eye on the share price from quarter to quarter are «delusional».

Thiam plans to lead Credit Suisse with a view to the full cycle.

The Markets Lost Their Minds

This scenario is familiar to one person. Last Tuesday Sergio Ermotti, Thiam’s opposite number at arch rival UBS, sounded equally relaxed following a massive fall in the UBS share price. The value of the Bluechip lost 10 per cent in the space of a day.

«We are sticking to our strategy and will continue to implement it consistently, so that we can offer our shareholders sustainable returns,» his bank promises. The message echoes that of Credit Suisse: the long view is what counts.

Even young Fintech companies like the Zurich derivatives specialist Leonteq have begun to adopt a mellow and wise tone. Following a setback in Asia Leonteq boss Jan Schoch recently told finews.ch: «The market takes a short-term view. We don't.»

With their rebuke of the markets, Thiam, Ermotti and Schoch are right on cue. «Long-termism», the focus on long-term returns, is currently the ultimate buzzword in the global financial sector.

New Sustainability

Banking bosses are promising long-termism; institutional investors are demanding it. There are even secret meetings taking place at the highest levels of Wall Street banking, subsequently leaked to the media to good effect. In short, the new creed of sustainability seems to have fully reached the sector better known for its fast pace.

At long last, one is tempted to say. At the latest since the financial crisis, investors, the public and regulators have been calling for just that: An end to the quick killing mentality, turbo capitalism on a three-month basis, and back to solid old-school banking.

Disturbing Picture

But is this approach really sustainable at this point in time? The UBS results – one of the best capitalized and leading asset managers of the world, not to forget – are alarming. When a powerhouse like UBS has to fight against outflows in the billions, how are its weaker competitors faring?

Even more disturbing is the picture at Credit Suisse. Only last October Switzerland’s second-largest bank sourced six billion in fresh capital from investors. Now the goodwill write-off from the fourth quarter has eaten up a good part of it.

This shows the impossibility of predicting developments even three months in advance, given the market turbulence, a wave of new laws, and interest rate changes. No Banking CEO can look into the future – now less than ever.

A Sneaking Suspicion

There is also the sneaking suspicion that the new philosophy is rather convenient: As long as profits (and therefore also bonuses) were increasing every quarter, there was no talk of long-termism.

Likewise top bankers have been accused of preaching water but drinking wine. Their institutions benefit more and more from mandates, which continually reevaluate and adjust the risks in their client portfolios – for a fee naturally. The «buy and hold» strategy that from an investment viewpoint is closest to «long-termism», is frowned upon as old fashioned.

Thiam, Emotti & Co may swear by long-termism. But in the end the famous dictum from economist John Maynard Keynes applies: In the long run we are all dead.

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