Credit Suisse faced the music again last week. The Swiss bank posted a devastating first quarter loss of £593million after the dramatic collapse of US hedge fund Archegos. The bankruptcy was hot on the heels of the downfall of financial firm Greensill.
The bank’s chief executive, Thomas Gottstein, branded the loss “unacceptable”. Even as it fights its exposure to Greensill, which collapsed into administration, Credit Suisse faces an even tougher uphill battle to win back credibility. Now, shareholders are trying to force out Andreas Gottschling, the board member responsible for risk oversight. Gottschling, who has served as the chair of the risk committee since 2018, pulls in a $1m annual fee.
In response to the Greensill and Archegos disasters, two top executives were axed and senior executives had their bonuses for the year withdrawn. The financial pain will not be over and the demand for blood has not abated. Acknowledging the problem is only the start of the slow and arduous process of reputational recovery and winning back the trust of shareholders’ and investors.
These events depict a classic example of a firm which thinks reputational issues can be fixed with aspirational statements about governance, without putting the processes and frameworks in place which actually make those statements viable.
Reputation risk management needs an actionable plan behind it. This must be driven by the C-suite, with direct accountability for governance by the board of directors. Critically, it must span an entire organisation, identifying and quantifying risks and managing, mitigating or insuring them.
Clearly, these structures were not in place at Credit Suisse. Nicolas Véron, a Senior Fellow at the Peterson Institute for International Economics commented the events could be “a straw in the wind that suggests there is a relaxation of risk management within banks because it is so difficult to make money on interest margins.”
One bank who Credit Suisse could look to and take a page from their playbook book is Barclays. In the last ten years, Barclays have endured several high-profile PR disasters including the Libor rigging scandal, PPI which rumbled on through the business pages for nearly a decade and more recently being accused of greenwashing whilst bankrolling fossil fuel companies like BP, Eni, Shell and Total to help them expand. Barclays has often been caught out, but each time comes back stronger and still rivals new digital banks like Starling and Monzo for customer satisfaction and retention in 2021.
It’s difficult to determine how Credit Suisse will claw their way out of this hole, but it will be a long and slow climb – only a new and sustained track record of competence will undo the damage done. Firstly, the bank will need to enter a period of capital preservation, whilst a strong leadership team must steady the ship and keep hold of the best performers. Importantly, the next step will be for Credit Suisse to make a statement of intent about what it will look like in the future. There is a prime opportunity here, for the bank not only to recognise its errors, but to seize the moment and adapt its risk-taking culture for good.
Other financial service providers are making moves in this area. For example, global investment manager BlackRock recently announced new proxy voting guidelines which cover the need for portfolio companies to disclose exactly this type of stakeholder-centric intelligence gathering.
Credit Suisse must take these events as a final warning. They have already made the tough decisions by starting to overhaul their senior team but how they push forward from here and make promises they can stand behind and deliver on will determine their future success and sustainable profit margins going forward in the future.