Too often when mistakes are made at banks there are no consequences for senior management. This week Credit Suisse made it clear that consequences, even for senior managers, will occur when there are serious errors made that lead to losses. This is a hopeful change in the culture of banks that should only be encouraged.
For Credit Suisse it may be cold comfort for the shareholders but senior managers from both the commercial and risk management areas of the bank have paid the price for the cost of three recent incidents that call into question the ability of Credit Suisse to manage its risk positions. This story began to appear in public with issues related to Greensill Capital. On 11 March the Financial Times reported extensively on various issues related to this exposure including that headquarter based senior risk managers overruled risk managers in London regarding a loan to Greensill. The exposure for Credit Suisse turned out to not only be related to loans to Greensill but also to funds managed by Credit Suisse that had significant exposures to Greensill related debt instruments. The overall losses related to Greensill at Credit Suisse will probably never be fully known but they are likely to be in excess of $1 billion.
The second risk management issue arose relative to Luckin Coffee in China. As reported by Bloomberg, “’I’ve had I don’t know how many dinners with him in Beijing and he’s absolutely the poster child for what we want to do,’ Tidjane Thiam said at a conference last year when he was still head of the bank.” These dinners were part of an integrated strategy of Credit Suisse to provide both private banking and commercial banking services to wealthy individuals. As Thiam went on to say “He’s a dream client.” More likely a nightmare at this point as Luckin Coffee has collapsed due to an accounting scandal that has led to loan defaults.
But for Credit Suisse three times is not a charm but rather just more bad luck (or bad risk management). As reported by the Financial Times on 6 April, Credit Suisse is facing losses of $4.7 billion on its exposures to Archegos through its prime security lending and synthetic equity financing activities. For regulators and shareholders there is limited transparency on these activities so that large losses can surface unexpectedly.
But among this tale of woe there is a bright side. Again from the Financial Times of 6 April is a report that at least seven senior managers have lost their positions. Furthermore as reported: “The bank’s senior executives have had their bonuses for the year withdrawn, while outgoing chair Urs Rohner waived his SFr1.5m chair fee after facing criticism over his unchanged total pay of SFr4.7m for the year.” Clearly consequential actions but limited in comparison to the losses realised by Credit Suisse and the end of a share buy back program and a significant reduction in the dividend payment. But at least a step in the right direction of creating management accountability.
