Credit Suisse (CS) and its chief executive Thomas Gottstein are facing a battle to win back credibility after a series of scandals that have left the bank's share price in the doldrums and cast doubt over its strategy and competency.
The Swiss bank has found itself at the centre of two of the biggest recent crises in finance: the collapse of Greensill Capital and the blow up of hedge fund Archegos Capital.
Greensill was a supply chain finance company that collapsed in March after losing insurance coverage. Credit Suisse ran a $10bn (£7.5bn) fund that invested in supply chain finance paper generated by Greensill, a key source of funding for the business. Credit Suisse suspended the funds shortly before Greensill's collapse and has now been left to pick up the pieces.
Archegos was the family office of Bill Hwang, a New York trader who worked at legendary hedge fund Tiger Management before striking out alone. Hwang made a series of highly leveraged bets on a handful of tech and media stocks. Those trades blew up last month, sparking a scramble among investment banks to close out positions. Credit Suisse was the slowest to react and has been left with billions in losses.
"Credit Suisse is the ultimate loser of the two scandals – reputationally damaged and holed below the water line," Bill Blain, a strategist at Shard Capital, wrote this week.
Credit Suisse has admitted it will lose an estimated CHF 900m ($970m, £704m) in the first quarter of 2021 as a result of the debacles. The bank suffered a CHF 4.4bn loss solely on its business with Archegos. Only a strong performance elsewhere in the bank has saved it from a deeper bottomline loss.
The extent of the damage from Greensill is still unclear. The bank has promised a full update within days. Analyst at JP Morgan estimated Credit Suisse could face a CHF 2bn bill from litigation linked to the Greensill funds.
Credit Suisse chief executive Thomas Gottstein this week said the bank's recent run of performance had been "unacceptable" and promised to "learn lessons" from the affairs. Gottstein and the board took drastic action to try and right the ship, including axing two executives and launching independent investigations into Archegos and Greensill.
WATCH: Credit Suisse takes $4.7bn Archegos hit
Shares rallied on the announcement but JP Morgan said it was likely a "short term" bump driven by relief that Credit Suisse had not asked investors to bail it out.
"The long-term consequences will be felt in the bank over time," analysts wrote.
Gottstein and his management team must now win back investor trust, repair the bank's balance sheet, and prove that a new strategy launched just months ago is still viable.
"Many won’t touch Credit Suisse for a while and shareholders are left holding the bag," said Neil Wilson, chief market analyst at Markets.com.
Gottstein, a 20-year Credit Suisse veteran, was drafted in as chief executive last February in the wake of the bank's last scandal. Former boss Tidjane Thiam was forced to resign after revelations about Credit Suisse spying on executives. The board promised to clean up the bank's act then, but the recent run of form suggests deep problems remain.
"The bank is paying the price of years of flawed management, poor risk awareness, and its self-belief it was still a Tier 1 global player," said Blain.
Gottstein has sought to try and address issues with a pivot away from investment banking. In December, he announced a plan to focus more intensely on wealth management in Asia.
Some now question the viability of Gottsetin's strategy in the wake of Greensill and Archegos. How keen will rich clients now be to entrust their money to Credit Suisse?
"Credit Suisse’s finagling with Greensill and lack of awareness of Archegos knocks their reputation for financial stewardship for six," said Blain. "I think they have a serious reputational issue to address – sacking key staff is an acknowledgement of failure but not a solution."
Solutions will have to be cheap. A need to rebuild the balance sheet and atone for errors means Credit Suisse is likely to enter "capital preservation mode," JPMorgan analysts said this week. Credit Suisse has already cut its dividend by two thirds and paused its share buyback. Executive bonuses have been scrapped.
Antonio Horta-Osorio, the Portuguese banker credited with rescuing Lloyds Bank (LLOY.L) after the financial crisis, will join Credit Suisse as chairman in May. He now faces another rescue job and one of his first tasks will be to overhaul risk management at the investment bank.
WATCH: The rise and fall of Greensill
"Gottstein can probably survive since he’s only been there a year but there has to be a question mark over the big rejig last year in the investment bank that was supposed to save money," said Wilson.
The battle to rebuild trust will likely be a long and slow one. Only a new track record of competence is likely to undo the damage.
The bank must also fight to keep talent and attract new blood. The mood among staff is funeral-like, according to those who have spoken to staff.
Without fast and effective action, Credit Suisse risks becoming "the Deutsche Bank of Switzerland", Blain said, "destined for years of underperformance, losses and disaffection."
"The question is not whether banks like Credit Suisse will survive, but why should they? The last years have not been good," Blain wrote.
"Spygate" — the scandal that claimed the scalp of former boss Thiam last year — was linked to Credit Suisse's intense competition with national rival UBS. Credit Suisse's share price has largely kept pace with UBS since Gottstein took over but has diverged sharply over the last month.
That divergence looks set to continue. Credit Suisse's banking analyst Jon Peace this week called UBS a "long term growth story" in a note that rated the stock "outperform." Meanwhile, UBS's banking analyst Daniele Brupbacher said Credit Suisse faced "material uncertainties in a number of key areas including... reputation, strategy, group management, top-line impacts in other businesses and so on."