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António Horta-Osório’s Credit Suisse exit comes at a bad time

António Horta-Osório's Credit Suisse exit comes at a bad time
Written by Publishing Team

Boris Johnson remains in office as prime minister, but Antonio Horta Osorio is leaving his position as Credit Suisse chairman after breaking quarantine rules. It’s been there less than a year. In the short term, not much will change. In the longer term, it could herald a much bolder adjustment than that announced in Credit Suisse’s new grand strategy in November 2021.

The strategy announcement made last November was the culmination of months of work at Credit Suisse. Motivated by the work of Horta-Osório jointly with McKinsey & Co. The strategy was supposed to prepare the Swiss bank for the future after a disaster year marked by the $5.5 billion loss of hedge fund Archegos and the collapse of Grencelle.

However, for many, it was not enough. Bank analysts at JPMorgan said in November that the new strategy was a missed opportunity and that rather than reaffirm a commitment to preserving and growing many areas of the investment bank, Credit Suisse had to cut costs more aggressively. Banking analysts at UBS made a similar point in December, noting that the lack of “a radical restructuring of the IB could be disappointing for some shareholders and other stakeholders” and that the revenue outlook for investment bank Credit Suisse appears uncertain.

Results from US banks reported thus far confirm this uncertainty. Both JPMorgan and Citigroup said last week that core services were one of the few companies that drove growth in share sales and trading revenue in the last quarter of 2021, yet Credit Suisse is exiting core services entirely. UBS analysts had already expected credit Suisse’s stock returns to fall 45% this year. It can prove optimism.

Across the investment bank as a whole, UBS analysts expect investment banking yields for Credit Suisse to fall 18% in 2022. This is a pivotal year for the investment bank. Under Horta-Osório’s strategy, the division’s allocated capital is set to decline from $13 billion in the third quarter of 2021 to $11 billion in 2022, before rising again to $13-13.5 billion in 2024. With Horta-Osório out of the picture, the risk is that the planned recovery of capital for the investment bank will not happen as planned.

In the short term, the danger is that Credit Suisse employees bleed out after the rewards are announced. The recent exit of Basil Eggenschwyler, head of credit commerce and sector strategy at Credit Suisse in the EMEA region at Credit Suisse, suggests that the 2021 bonuses may not be worth the wait. The combination of lower rewards and uncertainty caused by the exit of Horta Osorio, the architect of Credit Suisse’s new strategy, could be detrimental. Credit Suisse may be in for another volatile time.

Photo by Marcus Woodbridge on Unsplash

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