The future of Brady Dougan as chief executive of Credit Suisse has come under scrutiny amid increasing market pressure on the second largest Swiss bank by assets to bolster its comparatively weak capital base.
Chris Ratcliffe | Bloomberg | Getty Images
Credit Suisse
Analysts are questioning the bank’s ability to strengthen its balance sheet mainly through retained earnings after the Swiss National Bank last week called on Credit Suisse to boost its capital cushion.
Switzerland’s central bank suggested Credit Suisse should raise fresh equity from shareholders, scrap its dividend or shrink its risk appetite further.
“Given the explicit request to increase its loss-absorbing capital … an equity issue appears imminent given the lack of obvious business disposal candidates,” said Christopher Wheeler at Mediobanca.
It comes as Mr. Dougan, in a call to senior managers last Friday, reiterated his stance that the bank would be able to reach its capital buffer targets mostly by squirreling away profits in the next 18 months.
Asked in an interview with Swiss newspaper Sonntagszeitung whether he would raise fresh capital from shareholders, Mr Dougan said: “That is not our plan.”
One analyst, who declined to be named, said: “I think it’s very unlikely they’ll go for a rights issue voluntarily. But if they do, or if they are forced to by regulators, Brady Dougan would come under material pressure to step down as chief executive.”
Investors and analysts have already grown impatient in the past 12 months over Mr Dougan’s efforts to improve the bank’s profitability and cost base, which are lagging behind rivals in Europe.
Although they do not question Mr. Dougan’s credentials as a bank manager, they say that a capital raising now would make it difficult for him to stay in his job. Not only would shareholders resent the dilution, but the change of tack would undermine his strategy in recent years of making generous dividend payouts, in contrast to rivals, which have used a larger share of profits to boost capital.
Credit Suisse’s share price has dropped by almost a fifth to SFr 17.70 so far this year — partly owing to a sharp drop last week in the wake of SNB’s statement — underperforming the FTSE Eurofirst banking index, which fell 1 per cent.
Measured by the incoming Basel III framework, which will force banks to hold much more capital than previously, Credit Suisse is one of the weakest capitalized banks in Europe and the US.
Analysts at Morgan Stanley predict that the bank will have a core tier one ratio of 7.7 per cent at the end of this year, which is higher than Credit Suisse’s own forecast of 7 per cent but would still make it the second-worst-capitalized bank behind Deutsche Bank.
Credit Suisse has disputed that it had fallen behind rivals, saying that it is “one of the best capitalized and funded global banks”.