One of Credit Suisse’s oldest shareholders has sold its entire stake in the scandal-hit Swiss bank after losing patience with its strategy amid continued losses and an exodus of customers.
US investment manager Harris Associates, whose vice chairman and chief investment officer David Herro was for years one of the Swiss bank’s most prominent supporters, owned up to 10% of Credit Suisse shares the last year.
Harris began to reduce its exposure in October following the bank’s fundraising of 4 billion Swiss francs ($4.3 billion), when the Saudi National Bank supplanted it as the main investor and has now completely divested, Herro told the Financial Times.
“There is a question mark over the future of the franchise. There have been significant outflows from wealth management,” he said, referring to the 111 billion Swiss francs withdrawn by clients. of Credit Suisse in the last three months of 2022, particularly after rumors surfaced on social media regarding the bank’s financial health.
“We have many other options to invest,” he added. “Rising interest rates mean many European financials are headed the other way. Why go for something that burns capital when the rest of the sector is now generating it?”
Harris still owns shares in several European financial institutions, including Lloyds Banking Group, Intesa Sanpaolo, BNP Paribas, Julius Baer and German insurer Allianz. He is more confident about their prospects as rising interest rates increase their credit margins, profitability and ability to pay dividends and repurchase stock.
Herro is unconvinced that Credit Suisse’s latest sweeping restructuring, which includes spinning off its investment bank and bolstering its wealth management business, can turn the 167-year-old lender’s fortunes around.
Harris is frustrated, in particular, with the cost and lack of transparency of the investment bank’s spin-off deal with former board member Michael Klein — which will revive the First Boston brand — and the agreement to sell its securitized products business to the private equity group Apollon.
“We believe the investment bank’s restructuring plan, while a worthy cause, is burdensome and much more costly in terms of cash burn than expected,” Herro said. “We were also not happy with what we were getting in terms of revenue . . . from the sale of securitized products.
Credit Suisse said it was “ahead of our plan” and insisted it had “clear strategic objectives”, adding: “We are focused on the successful execution of our plan and the progress towards our goals to ensure that the new Credit Suisse delivers lasting value for all of our stakeholders.
Last month, Credit Suisse announced a loss of 7.3 billion Swiss francs for 2022, its second consecutive annual loss and the largest since the global financial crisis. The bank also signaled that there would be a “significant loss” this year.
The bank’s shares hit an all-time intraday low of 2.52 Swiss francs on Thursday, following a series of negative media reports about its struggles to retain staff and keep client assets. While it ended the week at SFr2.78, the stock is down 77% over the past two years.
Herro has been an active member of the stock register, fighting but failing to keep former chief executive Tidjane Thiam and overthrow chairman Urs Rohner after the CEO was caught up in a corporate espionage scandal in 2019.
Harris first bought Credit Suisse shares in 2002 when they were priced under SFr30, and sold them all before the 2008 financial crisis at prices between SFr60 and SFr70, according to filings. .
It was repurchased in 2009 when the price had fallen to around SFr23, spotting a value opportunity. After initially rising to SFr56, shares have since been steadily falling.
In May 2012, Harris held 37 million shares in the group, which at the time were worth just over SFr600 million but would today be valued at SFr103 million.
“It was a measurable drag on our performance,” Herro said. “You can’t win every time, that’s my job. We meet every business we own, but you spend a lot more time with your problem children. Credit Suisse has been a waste of time and value for years.”
Credit Suisse’s two largest shareholders are now the Saudi National Bank, which bought a 10% stake as part of the fundraising last year, and the Qatar Investment Authority, which increased its stake to 7% as part of the fundraising. same time.
Other U.S. investors who have cut their holdings are San Francisco-based $327 billion asset manager Dodge & Cox, which held a peak 5.11% of the shares at the end of 2020, according to filing data. This now stands at 3.1%.
Artisan Partners, which was among the top five shareholders last year and joined the group shortly after the appointment of former chairman António Horta-Osório, has completely sold out over the past six months.