Credit Suisse Showdown on Friday

Tidjane Thiam and Urs Rohner (Keystone)

Tidjane Thiam and Urs Rohner (Keystone)

Annual general meetings of banking institutions aren't usually events that send the pulse racing. Not so in the case of Credit Suisse on Friday.

1. Shareholders Dislike Golden Handshakes

Credit Suisse (CS) has handsomely rewarded its parting top managers for the services rendered. Brady Dougan, the former chief executive officer, and four of his colleagues received 21 million Swiss francs when they left the Zurich-based company, according to reports in the media.

Dougan's golden handshake will have stung shareholders in particular given the already generous pay package awarded during his tenure at the top of the bank and given that he hasn't managed to boost profitability and thus reward the owners of the institute. Still, the share price hasn't recovered since he was replaced by Tidjane Thiam last summer – declining by two thirds instead.

  • Conclusion: A recovery of the share price doesn't seem likely in the foreseeable future.

2. Signing-On Fees

Thiam's compensation package may also come under sustained fire at the AGM. The exact size of his pay is unknown but is probably close to 20 million francs. A substantial part – 14.3 million francs – is compensation for forfeited bonuses at his previous employer, the British insurer Prudential.

Shareholders have become increasingly unhappy about these extra payments for incoming managers, which have become the norm in the financial-services industry. Thiam forewent 40 percent of his bonus – in other words, he would have earned even more in his first six months at the bank.

  • Conclusion: It is a matter of concern that Thiam should have received a bonus for the short time at the bank in the first place. Deutsche Bank CEO John Cryan proved that managers can do without – together with his executives he took no bonus at all.

3. A New Era – With a Historic Dimension

The election of Alexander Gut to the board of directors is grabbing headlines only because of his father: Rainer E. Gut is the patriarch of the bank, only the second in its history after founding father Alfred Escher. Rainer E. Gut, the bank's honorary chairman, has been hugely influential.

Alexander Gut is a renowned financial expert with experience gained on the boards of Adecco and LafargeHolcim. Electing him to the board of CS and its audit committee makes sense. But of course, he will have to live up to high expectations and will be compared to his father. Not least, if he is to replace Urs Rohner as chairman. After all, the incumbent's position looks increasingly fragile in light of how the bank has performed in recent quarters.

  • Conclusion: Electing Alexander Gut may be the first step only and part of a plan to install him to the same position that his father once successfully held – chairing Switzerland's second-biggest bank.

4. Chairman Is in for a Tough Ride

Urs Rohner may not be looking forward to Friday's AGM. He is facing a barrage of questions about the operative guidance of Dougan and stands accused of having let the ship run aground. His subsequent handling of Dougan's succession is also a source of concern as Thiam clearly lacks the trust of the financial community in Switzerland.

The write-off to the tune of $1 billion at the «Global Markets» division has further undermined the position of the top two – and the all to public tussle about the reasons for the damage will have not have helped their working relationship.

  • Conclusion: Many eyes will be on Rohner on Friday and it will be hugely interesting to see if he attempts to put clear blue water between himself and the operative performance of his bank.

5. Tidjane Thiam – Still Going Strong?

After less than a year in charge, Tidjane Thiam's grip is weakening by the day. He presented the much-talked-about new strategy for the bank in October 2015. A mere six months later, it has been revised several times over – and still it remains unconvincing.

The banking world tends not to give him the benefit of the doubt because he is a stranger to the business – having earned his marks in consulting and insurance. Shareholders may however treat him a little more leniently – after all, it's his first AGM at the bank.

  • Conclusion: Still, if Thiam is unable to turn the tide soon, his position will be challenged. Rumor has it that the bank has engaged a reputed headhunter to find a new CEO.

6. Divisions Among Shareholders

Some shareholders have made it plain that they are concerned about the performance of the bank. Ethos and Glass Lewis, two institutions with voting rights, have been particularly vocal about the size of the compensation paid out to the executives. Glass Lewis' opinion matters: it advises 1'200 clients who together manage some $2'500 billion.

By contrast, the big shareholders have kept quiet so far. The Qatar Holding, Olayan of Saudi Arabia, Norway's state fund and Blackrock all refrained from public statements. Harris Associates meanwhile openly supported the management.

  • Conclusion: The big shareholders may keep quiet because they share responsibility for decisions taken – Jassim Bin Hamad J.J. Al Thani of Qatar is a member of the board. As owners of convertible bonds and former CS real estate they get handsome rewards in the form of interest paid, even when the share is worth less and less.

7. The Day of Reckoning?

The AGM may spring surprises. These events rarely do, but the situation at the bank has become rather hectic. A month ago, Thiam announced a further restructuring and stunned markets with a profit warning.

  • Conclusion: The top management may or may not use the event to talk about the performance of the bank, it may or may not announce a change of manager at a unit. The «Global Markets» division looks particularly vulnerable. The unit, under the guidance of Timothy O'Hara, was forced into a write down, only months after being hailed for its performance.

 

 

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