25th February 2024

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Business Industry and Financial

Former top Credit Suisse shareholder Harris Associates sells out of bank

One of Credit Suisse’s longest-standing shareholders has sold its entire stake in the scandal-hit Swiss bank after losing patience with its strategy amid persistent losses and a client exodus.

US investment manager Harris Associates, whose deputy chair and chief investment officer David Herro was for years among the Swiss bank’s most prominent supporters, owned as much as 10 per cent of Credit Suisse’s stock last year.

Harris started to cut its exposure in October following the bank’s SFr4bn ($4.3bn) fundraising, when Saudi National Bank supplanted it as the top investor, and had now divested completely, Herro told the Financial Times.

“There is a question about the future of the franchise. There have been large outflows from wealth management,” he said, referring to the SFr111bn withdrawn by Credit Suisse customers in the final three months of 2022, particularly after rumours appeared on social media about the bank’s financial health.

“We have lots of other options to invest,” he added. “Rising interest rates mean lots of European financials are headed in the other direction. Why go for something that is burning capital when the rest of the sector is now generating it?”

Harris still owns shares in several European financial institutions, including Lloyds Banking Group, Intesa Sanpaolo, BNP Paribas, Julius Baer and German insurer Allianz. It is more confident of their prospects as rising interest rates boost their lending margins, profitability and ability to pay dividends and buy back stock.

Herro is not convinced that Credit Suisse’s latest radical restructuring, which includes spinning off its investment bank and beefing up its wealth management business, can turn round the fortunes of the 167-year-old lender.

Harris is frustrated, in particular, by 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 securitised products business to private equity group Apollo.

“We feel the plan to restructure the investment bank, while a noble cause, is cumbersome and far more costly in terms of cash burn than we expected,” Herro said. “We were also not satisfied with what we were getting in terms of proceeds . . . from the sale of securitised products.”

Credit Suisse said it was “ahead of our plan” and insisted that it had “clear strategic objectives”, adding: “We are laser-focused on successfully executing our plan and on progressing towards our targets to ensure new Credit Suisse delivers sustainable value for all our stakeholders.”

Credit Suisse last month reported a SFr7.3bn loss for 2022, its second consecutive annual loss and biggest since the global financial crisis. The bank also signalled that there would be a “significant loss” this year.

The bank’s shares hit an all-time intraday low of SFr2.52 on Thursday, following a spate of negative media stories about its struggles to hold on to staff and retain customer assets. While it ended the week at SFr2.78, the stock is down 77 per cent over the past two years.

Herro has been an active member of the share register, fighting but failing to keep former chief executive Tidjane Thiam and unseat chair Urs Rohner after the CEO was caught up in a corporate spying scandal in 2019.

Harris first bought Credit Suisse stock in 2002 when it was priced at less than SFr30, and sold it all before the financial crisis in 2008 at prices between SFr60 and SFr70, according to filings.

It bought back in during 2009 when the price had fallen to about SFr23, spotting a value opportunity. After initially rising to SFr56, the shares have since been on a steady decline.

By May 2012, Harris owned 37mn shares in the group, which at the time were worth just over SFr600mn but today would be valued at SFr103mn.

“It has been a measurable drag on our performance,” Herro said. “You can’t win every time — it is the business I am in. We meet every company we own, but you spend a lot more time with your problem children. Credit Suisse has been a drain of time and value for years.”

The two largest shareholders in Credit Suisse are now the Saudi National Bank, which bought a 10 per cent stake as part of the capital raising last year, and the Qatar Investment Authority, which raised its stake to 7 per cent at the same time.

Other US investors to have reduced their stakes are $327bn San Francisco-based asset manager Dodge & Cox, which held a peak of 5.11 per cent of the shares in late 2020, according to filing data. This now stands at 3.1 per cent.

Artisan Partners, which last year was a top-five shareholder and bought into the group soon after the appointment of former chair António Horta-Osório, has completely sold out over the past six months.

Video: Credit Suisse: what next for the crisis-hit bank? | FT Film