One of Credit Suisse’s longest-serving shareholders has sold his entire stake in the scandal-plagued Swiss bank after losing patience with its strategy amid continued losses and an exodus of customers.
US investment manager Harris Associates, whose deputy chairman and chief investment officer David Herro was for many years among the Swiss bank’s most prominent supporters, owned a whopping 10 percent of Credit Suisse shares last year.
Harris began to scale back his exposure in October following the fundraising of SFr4bn ($4.3bn), when Saudi National Bank supplanted it as the top investor, and had now completely divested, Herro told the Financial Times.
“There is a question about the future of the franchise. There has been a large outflow from asset management,” he said, referring to the SFr111 billion that Credit Suisse clients have withdrawn in the last three months of 2022, especially after rumors of the bank’s financial health emerged on social media.
“We have many other options for investing,” he added. “Rising interest rates mean that many European financial institutions are going the other way. Why choose something that burns capital when the rest of the industry is generating it now?”
Harris still owns shares in several European financial institutions, including Lloyds Banking Group, Intesa Sanpaolo, BNP Paribas, Julius Baer and German insurer Allianz. It has more confidence in their prospects as rising interest rates boost their credit margins, profitability and ability to pay dividends and buy back shares.
Herro isn’t convinced that Credit Suisse’s latest radical restructuring, which includes spun off its investment bank and bolstered its asset management business, can change the 167-year-old lender’s fortunes.
Harris is particularly frustrated with the cost and lack of transparency of the investment banking spin-off deal with former board member Michael Klein — which will revive the First Boston brand name — and the agreement to sell its securitized products business to private equity group Apollo.
“We find the plan to restructure the investment bank, while a noble goal, cumbersome and much more costly in terms of cash burn than we expected,” said Herro. “We were also not satisfied with what we got in terms of yield. . . from the sale of securitized products.”
Credit Suisse said it was “ahead of our plan” and stressed that it had “clear strategic objectives”, adding: “We are focused on successfully executing our plan and achieving our goals to ensure that the new Credit Suisse delivers sustainable value for all our stakeholders.”
Credit Suisse last month reported a loss of SFr 7.3 billion for 2022, its second consecutive annual loss and the largest since the global financial crisis. The bank also indicated that there would be a “significant loss” this year.
Shares of the bank hit an all-time low of SFr2.52 on Thursday following a flurry of negative media stories about the struggle to retain staff and preserve client assets. Although it ended the week at SFr 2.78, the stock is down 77 percent over the past two years.
Herro was an active shareholder, fighting but failing to retain former CEO Tidjane Thiam and dismayed chairman Urs Rohner after the CEO was embroiled in a corporate espionage scandal in 2019.
Harris first bought Credit Suisse stock in 2002 when it cost less than SFr30, then sold it all before the financial crisis in 2008 at prices between SFr60 and SFr70, according to filings.
It bought back in 2009, when the price had fallen to around SFr 23, and saw a value opportunity. After initially rising to SFr 56, shares have since fallen steadily.
In May 2012, Harris owned 37 million shares in the group, which at the time were worth just over SFr 600 million, but would be valued today at SFr 103 million.
“It’s been a measurable drag on our performance,” said Herro. ‘You can’t win every time – it’s the business I’m in. We meet every company we own, but you spend a lot more time with your problem kids. Credit Suisse has been a waste of time and value for years.”
The two largest shareholders in Credit Suisse are now the Saudi National Bank, which bought a 10 percent stake last year as part of the capital raise, and the Qatar Investment Authority, which increased its stake to 7 percent at the same time.
Other U.S. investors who have cut their holdings include the $327 billion San Francisco-based asset manager Dodge & Cox, which held a peak of 5.11 percent of the stock at the end of 2020, according to the data submitted. This is now at 3.1 percent.
Artisan Partners, a top-five shareholder last year and bought into the group shortly after the appointment of former chairman António Horta-Osório, has sold out completely over the past six months.