Crdit Suisse First Boston Very unflattering story from Bloomberg. Aren't they big in gold derivatives?
From Credit Suisse Bunker, Everything Looks Fine: Matthew Lynn
(Commentary. Matthew Lynn is a columnist for Bloomberg News.
The opinions expressed are his own.)
London, July 18 (Bloomberg) -- The defining feature of a
bunker is psychological, not architectural. The bunker might be 50
feet underground, or it might be an elegant house overlooking Lake
Zurich. The walls might be bare concrete, or they might be
decorated with masterpieces. It makes no difference. The view from
the bunker is always the same. Everything's fine.
A bunker is where Lukas Muehlemann, chairman and chief
executive officer of Credit Suisse Group, along with the rest of
his board and management team, appears to have taken up residence.
As the bank spins out of control, its leaders remain calm and
serene. Don't worry, they purr. Everything's fine.
What other conclusion can observers draw from events over the
past few weeks at what remains of one of Europe's largest banks?
With the sacking of Allen Wheat last week, and his replacement with
John Mack, Muehlemann delivered a master class in financial
confusion and turmoil.
Amid investigations into its role in an IPO scandal in the
U.S. and a dramatic slump in the investment banking business,
Muehlemann dropped the architect of his acquisition strategy, and
bought in a man who until recently was running one of his biggest
rivals. He managed this trick without uttering a word that
suggested he, as chief executive, had any role other than
disinterested observer of his own company's disintegration.
Bereft
There are two interesting points that emerge from the free-
wheeling debacle that travels under the name of Credit Suisse. One
is that this is an organization entirely bereft of management. Not
where the management is poor, or reckless, or greedy, or stupid or
any of those things. But an organization where management, in any
honest sense of the word, has abdicated its responsibilities, and
has ceased to exist. Credit Suisse is about as close to corporate
anarchy as a big company ever gets.
But the second point is even more dismal. The market has
looked at this situation, considered its implications and decided
it just doesn't matter. No management at Credit Suisse? Who cares?
Sure, the shares are down about 7 percent this year, but not as
much as its peers: the Dow Jones Europe Stoxx Financial Services
Index is down about 9 percent.
Now, after five years pushing through a costly strategy of
global expansion to become one of the leading investment banks in
the world, the situation looks perilous at Credit Suisse. Much of
the money now looks to have been wasted.
Let Rip
Under Wheat, Credit Suisse bulked up in every direction. He
himself had been a superstar who was let rip (in his case
creating CSFB's mighty derivatives business), and his style was to
hire lots of other stars and let them rip as well. His biggest star
was Frank Quattrone, whom he took from Deutsche Bank AG to lead the
firm's technology unit in the U.S., and who made it the leader in
Internet IPOs.
Quattrone's demands for financial rewards and managerial
independence eventually turned off both Morgan Stanley Dean Witter
& Co. and Deutsche Bank, both organizations with strong stomachs
for egotistical employees. Like Spanish Catalonia, Quattrone
operated a semi-autonomous republic, writing his own rules and
gathering his tribe around him. Now his unit, though not the man
himself, is under official investigation.
Late last year, Wheat steered Credit Suisse into a $13 billion
acquisition of Donaldson, Lufkin and Jenrette Inc., which
significantly increased its size in investment banking, and added
to its collection of mini-Quattrones.
Like Louis XVI
That was a big bet to make at the top of a market. Over four
years, Wheat increased his staff from 5,000 to 28,000, many of them
lavishly paid. Along the way, he made CSFB the most expensively run
operation in the most expensively run industry in the world --
comparisons to the court of Louis XVI are not out of place.
And Wheat was not without his successes. Last year, Credit
Suisse First Boston was the third largest investment bank in the
world, earning fees of $5.5 billion. And so long as the bull market
kept going, and all his stars behaved themselves, the future looked
bright. Of course, that's not what happened. Management is about
foreseeing problems, planning for contingencies, assessing risks,
setting standards. At Credit Suisse, none of that ever happened.
Still, the world's investors have concluded that big
investment banks don't need to have effective management before
they buy the stock. Credit Suisse shares fell 1.7 percent
yesterday, and rose about 3 percent last week. Of the 44 analysts
that cover the stock, 21 rate Credit Suisse as a buy, 18 as a hold,
and only five as a sell.
No Price
It has become common to give analysts a hard time, and many of
the arrows slung in their direction are well aimed. On the subject
of investment banks and their management, however, they are usually
worth listening to. In this case their verdict runs something like
this: Obviously Credit Suisse has remarkably poor and inept
management, but that won't stop them from thriving in this
industry, nor should it hurt them against their rivals.
The lesson of Credit Suisse's problems is that there is, it
seems, no price to be paid. Wheat will be compensated for his
departure, Mack for his arrival. Muehlemann and the entire board of
Credit Suisse remain in place. The shareholders stay onside.
Retribution for failure remains for other people. At Credit Suisse,
the good times just keep on rolling. Inside a bunker, that's how
life is.
--Matthew Lynn via the London newsroom (0207) 330-7171/jp |
