Credit Suisse’s Turnaround Is Just Beginning

There is no answer to the question of why Credit Suisse’s Archegos losses are so much larger than the other four banks servicing the fund.

There is no answer to the question of why Credit Suisse’s Archegos losses are so much larger than the other four banks servicing the fund.

Photo: Stefan Wermuth/Bloomberg News

Crisis-hit stocks can become turnaround plays once the full extent of the damage is clear.
Credit Suisse
isn’t there yet, despite the best efforts of Chief Executive Officer

Thomas Gottstein.

The Swiss bank said Tuesday it expects the collapse of U.S. family office Archegos to cost it 4.4 billion Swiss francs, equivalent to around $4.7 billion. Mr. Gottstein cut the dividend, suspended buybacks and appointed new top managers to its investment bank, risk and compliance divisions. There will also be external reviews into the Archegos affair and the bank’s dealings with bankrupt supply-chain finance company Greensill.

Credit Suisse stock only wobbled slightly on Tuesday, leaving its market capitalization down over 5 billion francs since last week’s revelations of its exposure to Archegos. Compared with the start of March, before it suspended its Greensill-related funds, the total lost market value is roughly 7 billion francs. If valued on the same multiple of tangible book value as
UBS,
Credit Suisse would be roughly worth more than 15 billion francs more than it is today.

But none of this necessarily means Credit Suisse shares offer value. They have traded at much lower multiples than their crosstown rival’s for nearly a decade, despite a similar focus on wealth management. Mr. Gottstein’s latest actions only start the process of uncovering the problems underlying that discount.

The Credit Suisse veteran was made CEO in February 2020 in an attempt to draw a line under a spying scandal at the group. Since then, the bank has been touched by nearly every major financial blowup: Luckin Coffee, Wirecard, Greensill and now Archegos.

There is still no answer to the question of why Credit Suisse’s Archegos losses are so much larger than the other four banks servicing the fund. Was it bigger positions, smaller margin requirements, slow action to liquidate or something else? Meanwhile, the Greensill losses are still to be quantified and there remains a question about what other risks might be lurking.

External and internal examinations should provide some answers, but Mr. Gottstein’s response isn’t as comforting as it might be. He is reversing his own July decision to combine the risk and compliance departments under Lara Warner, who has now left the company. The new interim chief risk officer is the same man who held the post from 2014 to 2019, while the new investment bank boss served from 2004 to 2008 on Lehman Brothers’ senior team for Europe and Middle East.

Growth prospects are likely to be lower as the bank’s risk management tightens. Any big overhaul also will distract from the day-to-day operation of the group in the increasingly competitive business of banking the world’s wealthy.

There are some glimmers of light for shareholders. There is no sign yet that the bank’s latest high-profile missteps have impaired its reputation with customers: Credit Suisse reported net asset inflows in the first quarter, so far. Also,

António Horta-Osório
will soon take over as chairman of the board, bringing independence and experience in both crisis management and turnarounds from his time at Britain’s
Lloyds Banking Group.
More speculatively, there is the chance that Credit Suisse’s cheap stock could make it a takeover target.

Overall, though, this feels more like the beginning than the end of a process of corporate renewal. Those who see the Swiss wealth manager’s shares as a bargain after a tough year need to be prepared for further pain.

Write to Rochelle Toplensky at rochelle.toplensky@wsj.com