“My father once gave me a piece of advice: for really stupid questions, you’d rather not comment at all. So I think I will listen to my father’s advice in this instance.” So went Credit Suisse (CS) CEO Thomas Gottstein’s by-now infamous retort at the Goldman Sachs European Financials Conference last week to a question about those rumours of a takeover by State Street.
That’s reasonable advice from Gottstein senior. But it looks like he omitted to add that to make the advice work, you’ve got to be able to figure out what a really stupid question is. And let’s be honest, on the basis that Credit Suisse’s future has been pondered for years as the bank has bumbled along from mishap to mishap, it’s nothing if not an extremely reasonable question.
Which makes Gottstein’s rude, condescending comment sound rather ill-considered. Coming from a CEO who’s overseen his bank’s share price plummet by 55% since he took over in strange circumstances following that inglorious spying scandal that saw his predecessor fired, it’s a bit rich. And tone-deaf too, bearing in mind David Herro, a partner at Harris Associates, one of CS’s largest shareholders with a 5.19% stake, has publicly declared he is not averse to CS being pushed into a takeover. Or that David Samra, a managing director at Artisan Partners, a top 10 CS shareholder, has publicly called for Gottstein to be given the boot.
I wouldn’t have thought that either Credit Suisse or Gottstein would want to or indeed could afford to get on the wrong side of anyone else given their deeply intertwined predicaments. As well as the poorly performing stock, Gottstein is, let’s not forget, the man who has occupied the corner office as an ignominious succession of events has blown up or reached their dénouements – Greensill, Archegos, that Mozambique loan and securities business, the Bulgarian money-laundering saga, and that legacy US RMBS (residential mortgage-backed securities) situation.
And remember all of that media chatter soon after Russia invaded Ukraine about CS telling hedge fund clients to destroy documents about its 2021 securitisation of yacht, private jet and real estate loans just as a new round of Western sanctions was slapped on Russian oligarchs? I throw in the forced resignation of the CS chairman in January for breaching Covid rules not because it had anything to do with Gottstein, but because it was just another episode in the seemingly never-ending series of mishaps for the bank.
Adding to the woes, the day before Gottstein spoke at the Goldman conference, his flacks pushed out a statement warning that the investment bank and the group would both make second-quarter losses, owing to heightened market volatility, weak customer flows, client deleveraging, low levels of capital markets issuance and widening credit spreads. Remember that first-quarter earnings, already marred by weakening operating conditions, were whacked by a sixfold increase in litigation provisions to cover fallout from its various misadventures. CS profit warnings appear to be turning into certainties, alongside death and taxes.
The fact that the State Street rumour was sharply denied is almost incidental. No matter that on paper, State Street and Credit Suisse are highly unlikely bedfellows given their divergent businesses. Or that the Boston-based firm is focused on digesting its US$3.5 billion acquisition of Brown Brothers Harriman Investor Services, which is a direct fit adding the firm’s US$5.4 trillion in assets under custody to its own US$31.9 trillion and pushing it closer to Bank of New York Mellon’s market-beating US$45.5 trillion.
The fact that Credit Suisse’s NYSE-listed American depositary receipts fell almost 15% between Wednesday’s intraday high after the State Street rumour was reported by Swiss blog In$ide Paradeplatz and last Friday’s close after both sides had scoffed at it – and on record trading volumes to boot – tells its own story.
Maybe the initial frisson of excitement in the stock was less about business fit and more about the fact that anyone would be willing to pay a reasonable premium to take over such an accident-prone bank, commonly described as ailing, beleaguered, embattled or troubled.
