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“We are witnessing the destruction of one of Switzerland’s key activities”

IMD Professor Reacts: Didier Cossin on Credit Suisse’s restructuring announcement

22 October 2015

Credit Suisse has announced a huge cost cutting plan equaling nearly three and a half billion francs, following recent similar moves by UBS. The group will proceed with a massive reshuffling which will include 1600 job cuts in Switzerland alone. Credit Suisse and UBS are already subject to special Swiss legislation for their status as “too big to fail” and will now have to meet stricter new rules for net capital holdings, which was also just announced by the Swiss Federal Council.

Didier Cossin, IMD Professor of Finance and Director of the IMD Global Board Center met with the Swiss media RTS to discuss the troubled Swiss banking sector.

Extracts from the interview.

RTS: The two biggest Swiss banks, UBS and Credit Suisse are going to undergo large restructuration. Does this make any sense?

Didier Cossin: It was a logical and predictable move by Credit Suisse, but it means Switzerland is ceding a lot of ground to American competition and is leaving behind its investment banking activities.

RTS: Is this an admission of failure by Swiss banks?

Didier Cossin: Without a doubt. Credit Suisse already reduced its risk-weighted assets in investment banking by 50%. Today Credit Suisse could survive a loss of 51 billion francs, more than UBS lost in the worst days of the crisis. Meanwhile the bank has halved its investment banking activities.

Regulators keep asking for more though. The result has been the abandonment of big investment banking. There will still be small-scale investment banking but nothing like before. We are losing something that created value for the country.

RTS: What did the two big banks do wrong in investment banking?

Didier Cossin: Regulators such as the Swiss federal government and the national bank are putting too much pressure on them. The majority of Swiss people don’t approve of big banks anymore either. To me this is illogical because these big banks were a real asset to the country. They say these banks are too big for the country but does that mean that Nestlé, Swatch and Novartis are too big for Switzerland?

One of the most interesting announcements made by Credit Suisse’s CEO Tidjane Thiam is the fact that they are going to put their Swiss holdings on the stock market. There will also be a reorganization of the group’s governance structure which will treat Switzerland as a separate entity than the rest of its markets. We see that the bank is paying a lot more attention to Switzerland than it used to. UBS is doing something similar. 

RTS: Prominent Swiss leaders have hailed Credit Suisse’s latest moves. Why are you not on the same page?

Didier Cossin: I’m not the only one. The markets didn’t take the news too well either. There was a big drop in Credit Suisse’s shares.

Investment banking created a lot of value and this move is basically letting the American competition take over the sector.

Today the big Swiss banks are not exposed anymore to huge risks in investment banking. There are risks for sure, but they are more related to ethics and conduct. But, I think that their behavior has changed enormously in these areas. There are new processes for educating staff on these subjects, for example, and they have done even more.

I think we are simply witnessing the destruction of one of Switzerland’s key international activities.

RTS: Why did the government go so far in their demands?

Didier Cossin: They were burned by the UBS saga. There is also a general feeling in regulatory circles as well as among the general population that investment banking doesn’t create value.  

But it's clear that large investment banking sectors which are run ethically can have sizable impact. There are a number of examples around the world.

RTS: Will the new legislation stop the banks from pursuing their activities and growing?

Didier Cossin: Yes. They will put more focus on wealth management but the new rules will reduce the scale of that as well. 

RTS: What about the jobs that will be cut? 

Didier Cossin: The job reduction in Switzerland won’t be that dramatic. Credit Suisse clearly places a lot of importance on Switzerland. There will be a lot of cuts in the UK, which is the former base for the group’s investment banking.

RTS: Was this politically motivated?

Didier Cossin: Without a doubt. The bank is submitting to politics. They are trying to be creative and to gather favor in Switzerland. It’s a tough situation. Today the bank is not well liked and it is trying to correct that. It will take a lot of time for it to be liked again.

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