Credit Suisse is a car accident, but it has mastered its ineptitude, says ALEX BRUMMER
Apologies are rarely made voluntarily or quickly in commercial or public life.
By saying sorry, the person or organization fears lawsuits and exposure to monetary redress. Britain is home to a burgeoning litigation finance industry, which aims to take on the powerful.
Axel Lehmann’s mea culpa at Credit Suisse’s annual meeting is an important starting point.
Admittedly, the collapse of the 167-year-old Swiss bank after a series of fundamental errors and a run on deposits and assets was a signal moment.
Axel Lehmann’s mea culpa at Credit Suisse’s annual meeting is an important starting point, says Alex Brummer
Switzerland has long been considered the birthplace of discreet banking, but has survived previous crises, including World War II, when it was the repository for both Nazi money and the belongings of European Jews who perished in the Holocaust.
More recently, it has been in the firing line of the US tax authorities.
No one ever imagined that one of the country’s two largest banks would become insolvent. Lehmann’s apology to investors couldn’t have been worse.
‘I am really sorry. I am sorry that we could no longer counteract the loss of confidence that has built up over the years,” he said.
Several investors in the £13.6bn bank tier of contingent convertible bank bonds, or CoCos, have already indicated they will sue rescuer UBS over their cancellation.
Shareholders were effectively rescued (at a huge discount) but not wiped out. This is a reversal of what was intended when bailing out banks after the great financial crisis of 2008-2009. Process warriors will seize upon Lehmann’s comments as if they were manna from heaven.
There is something decent in Lehmann’s words. It’s been nearly 15 years since disgraced CEO Fred Goodwin brought RBS to its knees. He lost his knighthood, but the apology never came.
Former HBOS CEO Andy Hornby sailed on anyway, falling flat on his face at Boots, making a fortune at bookmaker Coral, before landing as chief executive at The Restaurant Group. There has been no remorse.
Credit Suisse is a car accident. But it has taken possession of his ineptitude.
Dimon dude
A common theme runs through Jamie Dimon’s criticism of US banking regulation and last year’s turmoil in UK pension funds.
Both were caused by a sharp rise in interest rates that destabilized government bonds. In the UK, pension advisers turned a sharp suit of gilt-edged stocks into a toxic asset by using it as fodder to create liability-driven investments (LDIs) – a strategy based on government bonds.
In the US, banks were encouraged to hold ‘safe’ government paper. When interest rates rose, the banks were left with huge losses. Stress tests introduced after the great financial crisis failed to examine US banks for a significant rise in interest rates.
Similarly, the testing around LDIs in the UK has never acknowledged that government bond yields could exceed 1%.
Dimon is unimpressed with the regulatory response to the crises at Silicon Valley Bank and Signature, saying the current disruption to US banking risks has been hiding “in plain sight.”
He also notes another trend. On the day British drug minnow Okyo Pharma announced it would move its stock listing from London to New York, JP Morgan’s boss bemoaned the erosion of publicly traded companies in the US, which fell from 7,300 in 1996 to 4,600. The number of companies backed by private equity has exploded.
Dimon blames heavy reporting standards and the emergence of outside voting advisory groups for the trend. In the UK it has long been the case that executives have been hiding behind remuneration consultants to promote the ‘fat cat’ remuneration culture.
Releasing private shareholders, as M&S boss Archie Norman suggests, could be a step forward.
Rich harvest
The pandemic led to an extraordinary accumulation of savings by British citizens, amounting to a staggering £200bn.
As baby boomers become silver surfers, the wealth advisors can reap is enormous. St James’s Place has become a ‘go to’ place for many, but others see the opportunity.
Rathbones, founded in Liverpool, is making major strides by merging with Investec Wealth & Management. The combined group will have £100bn under management, as well as 23 regional outlets.
The big four banks, which are rapidly closing branches and withdrawing online, are missing out on a huge opportunity.