Major shareholder leaves Credit Suisse and questions the future of wealth management

Swiss credit

In the 2022 financial year, the bank suffered its highest loss since the financial crisis at CHF 7.3 billion.

(Photo: Reuters)

Zürich Long-time Credit Suisse shareholder Harris Associates has left the crisis-ridden Swiss bank completely. Harris began reducing its stake in October and has now completely divested itself of it, Harris vice president David Herro told the Financial Times on Sunday. Most recently, the Chicago-based investment company held just under three percent of Credit Suisse shares. Last year, Harris Associates controlled around ten percent of the shares.

For the US investor, the stake in the second largest Swiss bank was a loss. Since the beginning of the year alone, the share certificates have lost 55 percent in value. Over a five-year period, the drop is over 83 percent. The Credit Suisse investment has dragged down the company’s performance for years, Harris investment boss Herro told the “FT”.

The bank’s capital increase at the end of October and the new strategy presented at the same time under CEO Ulrich Körner did not help Herro to regain hope of being able to limit his losses. Rather, he fears that the reputational damage will affect the core business, asset management. “The question arises as to the future of the business. There have been big outflows from wealth management,” Herro said.

Financial Supervision examines statements made by the Board of Directors

In the past few months, Credit Suisse has struggled with a loss of customer confidence and in the 2022 financial year it made its highest loss since the financial crisis at CHF 7.3 billion. In the fourth quarter of 2022, customers had withdrawn assets totaling CHF 111 billion. The outflow of funds was therefore greater than expected – and it continued in December, as was announced at the beginning of February.

At the beginning of December, Chairman of the Board of Directors Axel Lehman declared that the outflow of funds had “essentially stopped”. The Swiss financial regulator Finma is now investigating whether the bank’s chief supervisor misled investors with this statement. The share then fell to an all-time low of around CHF 2.60 per share at the end of February. Since then she has recovered little.

Harris Associates was a major shareholder in Credit Suisse for more than ten years and had remained loyal to the bank through numerous crises. But now the patience of investment manager Herro has been exhausted. He told the FT that there were many other ways to invest in banks. “Rising interest rates mean many European financial stocks are going the other way. Why invest in something that burns capital when the rest of the sector is now generating it?”

>> Read here: Credit Suisse’s situation is precarious

Regarding the restructuring of Credit Suisse, he said the plan to restructure the investment bank was a noble cause. It is “but cumbersome and far more expensive in terms of cash burn than we anticipated.”

Financial investors use weak negotiating position

Credit Suisse has spun off large parts of its investment banking business and wants to revitalize it under the First Boston brand. To do this, however, Credit Suisse will first take over an investment banking boutique from a former board member, US banker Michael Klein. He will receive around 175 million dollars for the sale of his company. Further external investors are to provide the newly formed investment bank with capital. It is highly uncertain whether the complex deal will ultimately pay off for Credit Suisse’s existing shareholders.

The terms of the sale of other parts of the company are also causing skepticism among existing shareholders such as Harris Associates. Credit Suisse is handing over the profitable but capital-intensive business with securitized products to the financial investor Apollo. This benefits from the fact that the bank is dependent on a sale and fresh capital. Herro criticizes: “We were not satisfied with the proceeds we received from the sale of securitized products.”

When asked about the interview, Credit Suisse said the bank was ahead of its plan and had clear strategic goals. “We are fully focused on successfully executing our plan and achieving our goals to ensure the new Credit Suisse creates sustainable value for all our stakeholders.”
With material from news agencies

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