Q&A with Tidjane Thiam: l will never declare victory
Bankers face a daunting environment today, particularly chief executives of European institutions—as Tidjane Thiam of Credit Suisse has learned first-hand. Since Thiam took the reins as CEO in July 2015, the 160-year-old bank has lost more than half its market value. Critics have scrutinised him from the start for a lack of banking experience, and the Swiss media has repeatedly speculated about a possible replacement.
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Born in the Ivory Coast, Thiam studied engineering at École Nationale Supérieure des Mines de Paris, one of France’s most prestigious universities, before working as a consultant at McKinsey, then rising in his native country’s government to become a cabinet member, and eventually taking over as CEO of insurer Prudential. Months after Thiam’s start at Credit Suisse—a bank steeped in history but mired in controversy—Thiam announced his strategy: expand wealth management and reduce dependence on trading. He raised capital and pushed ahead with cost cuts. An abysmal first quarter was followed by an unexpected second-quarter profit. Supporters say Thiam’s turnaround is already working: Operating expenses recently fell to the lowest level in more than two years, and the lender’s core capital ratio increased.
Over two interviews in July, Thiam explained why sport was a blueprint for running a bank; divulged what type of criticism wounded him most; and discussed the bank’s strategy, progress and many challenges. “Luck is not a strategy,” he says.
Francine Lacqua: You’ve been in charge at Credit Suisse for a little more than a year now. It’s been rocky at times. What have you learned?
Tidjane Thiam: It’s been a very interesting, busy year. We’ve defined a new strategy for Credit Suisse, which is really leveraging the brand of the bank. It’s very old and strong, one of the reference brands in the world of banking. There was a lot of heavy lifting at the beginning, because we had to strengthen our capital balance sheet and change the nature of our market activities—to consume less capital and to also have less volatile earnings. When you describe all of that, it’s sensible. The real challenge has been to do that in very challenging markets. The last 12 months have not been very bank-friendly.
FL: Your second-quarter results were better than expected. Are you starting to win?
TT: Oh God, I will never declare victory. I played a lot of sports, and you never declare victory until the final whistle. But it’s a good start. I’m pleased for our people, who’ve worked really hard. What is nice in life is to succeed together. It’s why I’ve always liked team sports.
FL: Were those results a signal to the market that you didn’t need to raise capital?
TT: I’m a cautious man, so I will never say words like “We don’t need to raise capital.” I will caveat that with, in most foreseeable scenarios, we do not need to raise capital. Being in control of our own destiny, I think that’s ultimately what management is about. Now we can focus on what the business is supposed to do, which is serve the clients. You always have to go back to the clients and start from there.
FL: How is that guiding you?
TT: A business has to have a purpose, and the purpose of what we do is to create value for our clients. It’s the raison d’être. We are nothing without our clients. If you listen to your clients, then the rest is relatively easy. It becomes: We understand what they want; we’re going to support them.
FL: Are you going to update the strategy at all?
TT: When you design a strategy, you have to make it flexible. As the world moves from Brexit to other things, there will always be unexpected events that we need to take into account. But overall, in its key features, the strategy should last. I believe in the strategy we’ve defined. I’ll tell it to you in one sentence: to be a leading private bank wealth manager with strong investment banking capabilities.
FL: You’ve been under scrutiny because of the share price. How much of that scrutiny is fair?
TT: The share price, frankly, has dropped a lot. There are many reasons why. Overall I’m very pleased with the progress made, because you have to think about what we’ve been trying to achieve, which has been to fundamentally de-risk the business. If you go back to the third quarter of 2015, we had the VAR [value at risk] at about $60 million. The average European bank had $34 million. So we were running about twice the trading risk of the average European bank. And our CET1 ratio [Tier 1 capital] was about 10.3 per cent; the average European bank had about 11.7 per cent. The way the business was organised meant we were taking quite a bit of risk with not a lot of capital. The journey we’ve been on is to change those terms.
FL: How’s morale? Can you put it on a scale of 1 to 10?
TT: I cannot quantify it, but it’s improving—it’s even palpable. People inside the company comment that it’s an improving trend. [Directs attention to a 10-year chart of Credit Suisse’s share price and then pinpoints his July 2015 arrival.] This is me. The narrative in the media is “An evil person clearly came and destroyed this great bank, look!” Sorry, that didn’t happen. Maybe we’ve gone down by 50 per cent since I started, but it was divided by 5 first—and that’s over 10 years. I’m here, and if I’m going to be crucified for that, so be it. But the facts are the facts, and the facts are stubborn.
FL: Are you unlucky?
TT: No, it’s not a question of being unlucky; it’s just the way it is. I can do many things, but I have not created problems of that scale in 9 or 12 months. We are dealing with a situation that developed over a period of 10 years. At least now the problems are visible, and we have a strategy to tackle them. They were there before and not visible. So we have given the markets transparency. Sometimes the truth is not very pleasant, but that’s what it is. At least now there’s a chance that it’s going to be addressed.
FL: How much time do you have to correct the share price?
TT: Look, ultimately the share price is the single most important thing. Am I happy with where the share price is? No. I feel sorry for our shareholders that we are at this price level—and remember I am a shareholder, too. We are working hard to correct this situation. I firmly believe that it will be corrected, because the share price absolutely does not reflect the value of the company. We have a lot of work to do to convince the market that we have a new model. I believe it’s the right model, but we need to build a track record. We’re also not the only bank in this position.
FL: How long does it take to build a track record?
TT: I cannot make a forecast. All I know is that, in my previous experience as CEO, it took quite a few quarters—which is fair. And you have to demonstrate results quarter after quarter.
FL: What do your biggest shareholders say?
TT: They really want us to drive the strategy forward, to execute and not get distracted. It’s very simple: Control the elements, control the risk. One shareholder told me, “Thank you. You are reducing risk. For many years I’ve been told we were reducing risk. Now I believe it’s being reduced. I can see it.” The fact that we have de-risked allows us to focus on serving our clients, rather than worrying about balance sheets, and winning in the marketplace.
“The process is often as important as the outcome.”
FL: What have your critics gotten wrong about you and what have they gotten right?
TT: The kinds of changes I’ve described, that we are implementing, cannot happen without disruption. That disruption is painful. I don’t minimise it. I recognise it. It’s very difficult for a lot of people. And of course it generates a lot of noise and discomfort. But we believe we can develop this together.
FL: This economic environment presents more than a few challenges. What’s the path forward?
TT: If you look at the sector today, ultimately the real challenge is a lack of belief in our ability to grow sustainably and profitably. At the end of the day, the evaluation of a company is about growth. The only answer is to cut costs. That becomes the only way to grow earnings if there’s never any top-line growth. That’s necessary in certain parts of any business. But ultimately you also need to be able to grow.
FL: When will you feel as if you’ve cut enough costs?
TT: When we don’t have to cut them anymore. My real philosophy about cost is productivity gain. I am, for all my faults and sins, an engineer. I come from a culture of automation technology. I believe in productivity improvements. An organisation should improve productivity by 2 or 3 per cent every year. And I always prefer to talk about productivity more than cost. It’s a much better word, because that’s what’s relevant. We’re promoting a culture of continuous improvement, and the restructuring and reengineering is very deep. It’s about changing the structure of processes and redesigning them in a more efficient way. Our global markets division has done a pilot of that, and their solution was a front-to-back, but also back-to-front, reengineering in eight weeks. They’re really excited about the opportunities, where we can serve our clients better, cheaper, and faster. But for that you need to break the silos, you need to get people around the table and say, “How can we work better?”
FL: So how do you build a team?
TT: It’s a very important thing. Maybe that’s all we do in business—because, at the end of the day, that’s the only way we can impact reality and change things. You have to be inclusive. I hear all the criticism, but if you look at the five divisions we have, they’re each run by someone from within. I didn’t bring one person from the outside to run the businesses. I could have, but I didn’t. So it was a form of a compliment to the organisation. I really have nothing but respect for the people inside. And then it’s really getting the team to work together. There’s no substitute for spending time together. It’s the only way humans get to know each other, the central point of which is that we can reliably predict what we’re going to do. And with that you can control the outcomes. Often the problems come from the uncertainty and not knowing how we’re going to react. Also, having gone through a fire together generates trust. That’s human nature. And trust is the glue with which you move forward.
FL: Do you have the support of your investment bankers?
TT: The proof of the pudding is in the eating. I wrote a memo to congratulate everyone for Brexit, because it took a lot of coordination to manage that well. We had worked for weeks. Two weeks before, I got uncomfortable. I could see the bookies were saying there was a 22 per cent chance of Brexit, which was too high. It was a bit like a Russian roulette probability. We had to set a maximum loss, and then we took that number down. We went into the referendum in a safe place, and our execution was excellent because it was across units, across markets and across divisions. It was a robust, real-life stress test, and I’m thrilled how well the organisation performed. Everybody pulled together.
FL: Why do shareholders have so many questions about Credit Suisse?
TT: I’m not sure that they have more fundamental questions. I think it’s really as I described. We’re doing the heavy lifting, de-risking, restructuring, in markets that are completely unsupportive. So if you think about what we did between the end of the year and the end of the first quarter, we cut the VAR by one-third. We reduced the risk by one-third. That’s a massive de-risking—one of the most massive ever conducted in the industry, and we conducted it very quickly and at a reasonable cost.
FL: Less than four months into the job, you unveiled a whole new strategy for Credit Suisse. Should you have waited?
TT: No, because we really needed the capital. I won’t elaborate on what would have happened if we had hit the fourth quarter without the capital.
FL: But it would have been ugly?
TT: I will leave the choice of words to you. It would have been at least uncomfortable. Extremely uncomfortable. My view on risk is that you never know when things are going to go wrong, so you always need to be in a position where you can withstand any shock. Luck is not a strategy.
FL: Was there a communication problem when you unveiled the strategy? Shareholders said they didn’t get enough details, which led some to question it.
TT: The key thing is to learn some lessons from every situation. As we all know, one cannot change the past. What happened, happened. And it’s really “What do we do going forward?”
FL: It’s been said you look at risk as a consultant does, which you once were.
TT: I’ve been working for 30 years. I was a consultant for 10 of them. I left McKinsey in 1994. That’s a long time ago. Kids who were born then are in college now, like my son. So no, my focus on risk is because financial services are all about risk. It has little to do with my consulting background. It’s about taking risks and making sure you’re appropriately rewarded for them. I think the fear when you focus on risk is that you’re not a risk taker, but I don’t think there’s a lot of evidence of that in my life and my career.
“The single most important thing in life is not to die. First, you stay alive. Then you can think about the future and evaluate risk”
FL: How has your view of risk changed?
TT: Risk is at the heart of capitalism. Without risk, there isn’t capitalism, and I’m a great believer in the capitalist system. But the risk appetite of investors has changed. Post-crisis, regulations have changed, the interest rate environment has changed, and the macroeconomic environment has changed. Tolerance for a certain level of volatility of earnings in regulated companies has gone down. People have no appetite. So companies have to take that into account. And when I say we have to profoundly rethink how we run a bank, that’s part of the debate. My absolute No. 1 priority was to shore up the capital. From there, it’s a chance to survive. The single most important thing in life is not to die. First, you stay alive. Then you can think about the future and evaluate risk. We didn’t have that luxury, not with the lowest CET1 in the industry and carrying twice the risk.
FL: If you could change one thing about Credit Suisse straight away, what would you do?
TT: You mean other than the share price? [Laughs.]
FL: Is that what you would change?
TT: No. See the thing with change is that the process is often as important as the outcome. You grow and you develop, and you learn by achieving difficult things. That has enormous value. A magic change would almost not be worth having, because you wouldn’t learn anything and you might end up repeating the same mistake. I’m tempted to say nothing, because it’s good to learn things. There’s a lot that an organisation and its people can learn from that process.
FL: When you took charge of Credit Suisse, you were seen as an outsider. Are you still an outsider looking in, or are you an insider?
TT: In my head, I’m an insider. It was a big decision for me to take this job. It’s an unusually important job. I’m really excited about it. I think the power of this franchise will show over time. The central point in all this is that we’ve really given a lot of thought to what a bank should look like in the new, post-crisis world. We’ve come up with a model that addresses those questions, and every indication we have in terms of numbers shows it’s working. We’re dealing with a lot of issues that aren’t resolved, but we’re convinced that these are the right issues to deal with.