Credit Suisse appoints Ulrich Koerner as CEO, launches strategic review as losses worsen

Credit Suisse announced Wednesday that CEO Thomas Gotstein will be stepping down as the bank reported a massive loss in the second quarter, as the investment bank’s weak performance and mounting litigation slashed profits.

The beleaguered Swiss bank posted a net loss of 1.593 billion Swiss francs ($1.66 billion), well below analysts’ expectations for a 398.16 million Swiss franc loss.

In a statement on Wednesday, Gotstein said second-quarter results were “disappointing” and that the bank’s performance was “significantly affected by a number of external factors, including geopolitical, macroeconomic and market headwinds.”

“The urgent need for decisive action is clear and a comprehensive review is now underway to strengthen our hub in wealth management, Swiss bank and asset management, supported by the fundamental transformation of our investment bank,” he said.

“Today marks a leadership change for Credit Suisse. It has been an absolute privilege and honor to serve Credit Suisse for the past 23 years. My passion since day one has been to provide the best service to our customers.”

Ulrich Koerner, the former chief executive of the bank’s asset management division, will replace Gotstein, who took over the reins in early 2020 after his predecessor Tijani Thiam resigned following a spying scandal.

Credit Suisse chairman Axel Lehmann gave his full support to Gutstein in May and denied reports that the board had discussed replacing him. He told CNBC on Wednesday that Gotstein was a “great guy” who did a “fantastic job,” but that two major changes have occurred since that conversation at the World Economic Forum in Davos.

“First, we embarked on a comprehensive strategic review and announced today that we were accelerating the transformation process, and Thomas decided that at that time, also for personal reasons, it was best to make a change,” Lehmann said, adding that Gotstein was “instrumental” in developing the strategic review.

“He’s totally behind it, but at a certain point you have to have the full energy, and I think at that point, he and I felt it was best to change and bring in someone like Ulrich Korner, who I think has a track record of operational transformation.”

Korner, a Credit Suisse veteran, will take over as CEO immediately, and Lehmann said his appointment represents, on the one hand, a “continuation” of the transformation efforts begun under Gotstein.

“[Koerner] Knows banking from the inside out. “He’s been building businesses, and he’s been the chief operating officer of large organizations, so he really has a back-to-back approach, I call it, a back-to-front approach,” Lyman said.

He will take over immediately and lead the transformation that we will accelerate.”

Hit the investment bank

Credit Suisse said in a summary on Wednesday that the investment bank was hit by a significantly lower capital markets issuance activity and lower client activity, acknowledging that the division’s positioning “was not geared towards taking advantage of volatile market conditions” and its areas of strength, such as capital markets, ” I was very impressed.”

The 29% annual decline in group net revenue was primarily driven by a 43% drop in investment banking revenue and a 34% decline in wealth management revenue, while asset management revenue was also down 25%.

Credit Suisse warned in its report: “In the investment bank, while we have a strong portfolio of transactions, it may be difficult to implement them in the current market environment.”

“Trading so far in Q322 has been marked by persistent weakness in client activity, exacerbating normal seasonal declines, and we expect this division to report further losses this quarter.”

Operating expenses were up 10% year over year and included major litigation rulings of CHF434 million related to multiple legal matters.

series of scandals

Wednesday’s dismal earnings report comes on the back of a net loss of CHF273 million in the first quarter, as losses related to Russia and ongoing litigation costs arising from the Archegos hedge fund scandal weighed on the bank’s income.

In the second quarter of 2021, Credit Suisse net income came to CHF253 million, down 78% from the previous year, after losing CHF4.4 billion following the collapse of Archegos.

Credit Suisse warned early in June that it was likely to incur a loss in the quarter, citing a deteriorating geopolitical situation, tight monetary policy from central banks, and a rollback of Covid-19 stimulus measures.

The bank said at the time that this confluence of adverse conditions had caused “continued increased market volatility, weak client flows and continued client deleveraging, particularly in the Asia Pacific region”.

Despite the difficult background, Credit Suisse pledged at an Investor Deep Dive event in late June to press ahead with risk management and compliance reform, which was launched after a series of scandals and aims to overhaul the risk and compliance functions, technology and processes, along with the wealth management business.

Other advantages:

  • Group revenue was 3.645 billion Swiss francs, down from 5.103 billion Swiss francs in the same period last year.
  • CET1, a measure of banks’ solvency, was 13.5%, compared to 13.7% at the same time last year.

The bank also faces a potential $600 million hit from a lawsuit in Bermuda relating to its domestic life insurance arm, as long-standing scandals continue to erode its balance sheet.

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