Who Knows The Real Potential of Credit Suisse?

Credit Suisse in London's Cabot Square

Credit Suisse in London's Cabot Square

Credit Suisse shareholders had every reason to celebrate Wednesday, when the stock gained more than eight per cent. A few short days beforehand, there were fears that the share price could fall below ten francs.

Stock exchange speculators had quite a shock Wednesday when Credit Suisse shares increased by as much as 8 per cent. This level of movement has not been seen for some time – except in the other direction. In recent days, some experts could be heard asking whether the stock could even slip under the 10-franc mark

Those predictions are now (for the time being) in the wastebasket. But what actually caused the share price to increase that much in value? Certainly, the surprisingly good quarterly results from J.P. Morgan gave things a push. On top of that different large shareholders and investors spoke out, presenting at least a cautiously optimistic view of the stock.

Great Opportunities Squandered

One voice of encouragement was David Herro, head of international securities investment at the American investment company Harris Associates, which holds five per cent of Credit Suisse, as reported by finews.ch Wednesday. Evans Osemwegie, president of Evago Global investment firm, also had his say.

Osemwegie’s comments are noteworthy in that they contain a grain of truth. He warns that an overhasty off-loading of Credit Suisse’s investment banking would squander huge opportunities. Or to put it in a positive way: Credit Suisse still has an important investment banking franchise, that it should not jeopardize light. Rather, it should be fostered because there are no longer many other institutions that can challenge the American superpowers in this area.

Investment Banking In DNA

Investment banking is a historic part of Credit Suisse’s DNA. The bank has built up broad expertise in the areas of capital market financing, mergers and takeovers advice as well the structuring of financial products, Osemwegie says. As well as that the bank has strong ties to the insurance sector. With these attributes, Credit Suisse meets the criteria to become a player in Europe, if not the most significant.

However, Osemwegie is realistic enough to acknowledge that Credit Suisse is still a significant distance away from achieving this. «Unfortunately, it seems that the Credit Suisse board are in a lot of hurry to decrease costs seemingly regardless of the unintended consequences,» he said. Instead of putting employees out on the street, Credit Suisse should be reducing its range of products.

A Fan of Tidjane Thiam

Osemwegie is still of fan of Credit Suisse CEO Tidjane Thiam. However, he expects to see further slippage in Credit Suisse shares, he writes in the sector portal «Seeking Alpha». Because what the Swiss banking giant needs is more skills in its board.

This corresponds with the opinion of David Herro, who told the Swiss financial newspaper Finanz und Wirtschaft Wednesday that the board could benefit from more banking know-how. «In a financial institution as complicated as Credit Suisse, people are needed in the oversight body who understand the business.»

Lack of Trust In The Board

This statement is a clear reference to the chairman of the Credit Suisse board, Urs Rohner, and whether he has the capacity or the track record to build up the necessary level of skills on the board. It is not a credible response to try to present things in a positive light now and attribute massive write-offs to some sort of market appraisal, or even put the blame on management. The top management of the company is better ordered now; next the corresponding changes are needed in the board – all the way to the top.

Splitting up Credit Suisse with a focus on investment banking is actually nothing new. The Swiss finance expert Beat Wittmann expressed similar thoughts at the end of 2012 in an interview with finews.ch, and the subject came up again later too.

Look Towards Asia

How successfully Credit Suisse’s investment banking business can actually develop will likely first be shown in Asia, where the bank has been able to operate relatively independently of the rest of the group since the reorganization. In the Far East, there are hardly any plans to limit the franchise or lay people off, as reported by finews.asia.




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