Tidjane Thiam at the One-Year Mark

Tidjane Thiam, one-year mark, Credit Suisse

Tidjane Thiam, Credit Suisse chief executive (Picture: Keystone)

Tidjane Thiam revealed Credit Suisse's new strategy last October. The finews.asia 12-month reality check in six points.

«Our strategy is a growth strategy; a profitable growth strategy. It will create value for our customers, generate capital, and over time deliver value to our key stakeholders – investors, clients and staff.» These were the words from Credit Suisse CEO Tidjane Thiam accompanying his strategy review of the bank last year.

Growth and value have taken a backseat since then. Thiam was forced into an unexpected hefty write-down in the first quarter of this year, and also revised some of the numbers behind his strategy. He has also had to cope with a slide in the bank's stock and a mutiny among Credit Suisse investment bankers.

The situation didn't ease until summer; Thursday's result is the second profitable one in succession. But is that enough for Thiam to meet his ambitiously laid out 2018 targets? A closer look at the key targets reveal that Credit Suisse has to get a move on.

1. Pushing Money Management

A leading private bank with strong investment banking capabilities is how Thiam sees Credit Suisse. At first glance, the bank has won the trust of the world's wealthy, winning 30.9 billion Swiss francs in net new money in the first nine months.

A comparison of managed assets on the year paints a different picture: Credit Suisse's assets fell 2 percent to 1.255 trillion.

  • Upshot: the inroads made thus far by Credit Suisse aren't yet those of a leading private bank.

2. Asia Growth

Thiam wins praise for Credit Suisse's business in Asia, where the bank is growing more quickly than rivals and making its name as a bank for entrepreneurs. Asia-Pacific managed 169 billion francs in the third quarter, one-fifth more than the prior year, and defended its place behind crosstown rival UBS and U.S.-based Citi.

Thus it's slightly bitter that the unit's pretax profit dropped from 162 million francs to 152 million.

  • Upshot: points to Thiam for Asia. Profitable growth however will take longer than he would like to achieve, due to considerable investments to ramp up the bank's business there, including in key staff.

3. Spruce Up Swiss Bank

Credit Suisse's Swiss Universal Bank, or SUB, will be hived off as a separate entity on Nov. 21 and the bank's plans to spin off a minority stake to investors next year is on track. Part of that means polishing the unit to a mirror finish, otherwise Credit Suisse risks taking in less money from listing the stake.

But the unit, led by investment banker Thomas Gottstein, didn't necessarily shine in the third quarter. While it improved profitability thanks to rigorous cost-cutting, it still faces the same headwinds – negative interest rates and trading-shy clients – as other finance firms. Interest income was stable, but outflows ate into net new money: the bank showed just 200 million francs in fresh funds, from 3 billion last year.

  • Upshot: SUB's profitability is commendable, but investors will want to see long-term growth opportunities when the stock is listed – these aren't yet identifiable.

4. Slashing Spending

Thiam estimates that Credit Suisse will be able to cut costs by 1.5 billion francs this year, which would mean the bank overshoots this year's stage of savings targets. Cutting a total of 5,400 jobs by year-end puts him within striking distance of this target.

A look at last year puts this into context: spending actually rose by 2 percent, while Credit Suisse only shed a net 400 jobs. This means that Credit Suisse may have cut the 5,400 jobs, but added them back in other areas.

  • Upshot: Credit Suisse has neither cut costs nor laid off staff in any substantial way.

5. Targets Need Adjusting

Thiam's promise to double pretax profit by 2018 was cast into doubt just weeks after he announced it last year. The one-year mark seems more appropriate to take another look at the target. Thiam laid out clear targets for the global private banking division, or IWM, Asia-Pacific, and Switzerland in particular.

SUB's pretax profit surged 90 percent on the year and IWM rose 24 percent, but Asia was 6 percent lower. The Swiss unit's profit of 758 million francs seems far off the 2.1 billion franc target by 2018, while the overall bank's pretax profit of 41 million francs shrank by 74 percent on the year.

  • Upshot: it's time for Thiam to revisit his profit targets in view of the gains achieved after one year.

6. Strengthen Capital, Avoid Risks

Credit Suisse wants a ratio of at least 13 percent on one of the toughest measures of financial solidity, common equity Tier 1 or CET 1, by 2018. The bank managed to lift the ratio to 12 percent despite provisions for future legal cases, and also improved its leverage ratio after chopping leverage exposure by 29 billion francs and lowering risk-weighted assets by 3 billion sequentially.

A brisk reduction of these risks is a matter close to Thiam's heart after he was heavily criticized for the hefty investment banking write-down earlier this year, so he has notched up a win in this quarter.

  • Upshot: Thiam wants to pay out surplus capital to shareholders from 2020. Before he does so, Credit Suisse needs to fulfill tougher capital requirements which take full effect from 2019. This underscores the urgency with which he must continue to offload risks and build up capital. The litigation provisions taken in the most recent quarter highlight that fines and penalties for past misbehavior will hit the bank where it hurts most: its capital.


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