Credit Suisse is a car crash, but it has taken ownership of its ineptitude, says ALEX BRUMMER
Apologies are rarely made either voluntarily or swiftly in commercial or public life.
By saying sorry, the person or organisation fears litigation and exposure to monetary redress. Britain is home to a fast-growing litigation funding industry, which aims to take on the powerful.
Axel Lehmann’s mea culpa at the Credit Suisse annual meeting represents an important departure.
Admittedly, the collapse of the 167-year-old Swiss bank after a series of fundamental mistakes and a run on deposits and assets was a signal moment.
‘Axel Lehmann’s mea culpa at the Credit Suisse annual meeting represents an important departure’, says Alex Brummer
Switzerland has long been regarded as the home of discreet banking but has survived past crises, including the Second World War, when it was the repository for both Nazi money and the holdings of European Jews who perished in the Holocaust.
More recently, it has been in the line of fire from the US tax authorities.
No one ever imagined that one of the country’s two top banks would become insolvent. The apology by Lehmann to investors could not have been more abject.
‘I am truly sorry. I am sorry we were no longer able to stem the loss of trust that has accumulated over the years,’ he said.
Several investors in the bank’s layer of £13.6billion of contingent convertible bank bonds, or CoCos, have already indicated that they will be suing rescuer UBS over their cancellation.
Shareholders were effectively bailed out (at a vast discount) but not wiped out. This is a reversal of what was meant to happen in bank rescues post the great financial crisis of 2008-09. Litigation warriors will seize on Lehmann’s comments as if they were manna from heaven.
There is something decent about Lehmann’s words. Nearly 15 years have passed since disgraced chief executive Fred Goodwin brought RBS to its knees. He lost his knighthood but the apology has never been forthcoming.
Former HBOS chief executive Andy Hornby sailed on regardless, falling flat on his face at Boots, making a fortune at bookies Coral, before landing as chief executive at The Restaurant Group. There has been no remorse.
Credit Suisse is a car crash. But it has taken ownership of its ineptitude.
A common theme runs through the critique by Jamie Dimon of US banking regulation and the turmoil in the UK’s pension funds last year.
Both were caused by a sharp rise in interest rates which destabilised government bonds. In the UK, sharp-suited pensions consultants turned gilt-edged stock into a toxic asset by using it as fodder to create liability driven investments (LDIs) – a strategy built on government bonds.
In the US, banks were incentivised to hold ‘safe’ government securities. As interest rates rose, the banks found themselves sitting on huge losses. Stress tests put in place post the great financial crisis failed to examine the US banks for a significant rise in interest rates.
Similarly in the UK, the tests around LDIs never recognised that gilt yields could move beyond one per cent.
Dimon is unimpressed with the regulatory response to the crises at Silicon Valley Bank and Signature and argues the current disruption in US banking risks has been ‘hiding in plain sight’.
He also notes another trend. On the day that UK drugs minnow Okyo Pharma revealed it was switching its share listing from London to New York, the JP Morgan boss bemoaned the erosion of quoted companies in the US, with numbers falling from 7,300 in 1996 to 4,600. The number of firms backed by private equity has boomed.
Dimon blames onerous reporting standards and the rise of external voting advisory groups for the trend. In the UK, it has long been the case that directors hide behind remuneration advisers to drive the ‘fat cat’ pay culture.
Re-enfranchising private shareholders, as M&S boss Archie Norman suggests, could be a way forward.
The pandemic led to an extraordinary accumulation of savings by UK citizens, with as much as £200billion sitting around.
As baby boomers become silver surfers, the riches to be harvested by advisers are enormous. St James’s Place has become a ‘go to’ place for many, but others see the opportunity.
Liverpool-founded Rathbones is bounding into the big time by merging with Investec Wealth & Management. The combined group will have £100billion under management as well as 23 regional outlets.
The big four banks, rapidly closing branches and retreating online, are missing an enormous opportunity.