Friday, April 29, 2016


Throughout the years there have been a lot of stories which I have not covered usually because I have no knowledge of the issues involved, no understanding of the same or simply because they're not fun. This goes into the category of "all of the above" but it's simply too good to pass up.  Total credit to the Wall Street Journal whence this comes and I pass it on because in my mind it spells out in the clearest possible terms Why People Hate Banks.

It has hardly been a secret that Credit Suisse has had a bit of difficulty as of late.  At least that portion of the venerable institution that was formed with the amalgamation of the investment banking guys of the bank and First Boston Corp. 20-odd years ago.  The problem with a merger such as that one is the prime assets of the acquired company--unless they are really happy about the deal--can walk out the door overnight which is what the First Boston guys did in droves as soon as the period covering their "stay at home" bonuses ran out.  CSFB as it was known, had a difficult birth.

Things perked up, but the fortunes of the firm were always a roller coaster ride and finally the whole kit and caboodle was folded into Credit Suisse (where it should have been in the first place) where the  American management that was the old CSFB  wound up running the whole show which if the truth be known was never particularly well received by the Swiss mob who, while probably peaking at least four languages themselves, never really enjoyed dealing with the barbarians from across the pond who spoke only one and it wasn't Suisse-Deutsche.  This was never a match made in heaven.

Anyway, the years past and Credit Suisse (First Boston having been abandoned) got hammered in the Great Crash just like everybody else but took a particularly hard hit as their business was--shall we say- a bit more cutting edge than some of their compatriots.  They survived but with multiple changes at the top culminating last years with a gent named Tidjane Thiam who came from them from Prudential Ltd., the Brit Insurer which, by the by, is no relation of The Rock, where he was CEO.  Now Mr. Thiam is a serious guy.  He is a citizen of the Ivory Coast and also holds French citizenship.  He was admitted to the Ecole Technologic (sp?) from which EVERY mover and shaker in France must graduate.  Among a host of big powered jobs he was a European star at McKinsey & Co. in their financial services business.  He came to Credit Suisse in June of last year.  The guy is a major international hitter.

Well, if you have ever had any contact with McKinsey, Booze Allen or any of the other consultants to the stars you probably know that whenever faced with a sticky situation, the first thing they advise is to reorganize and lo and behold they usually will present you with a tried and true template for the reorganization.  Sometimes it's even the same template they have presented to another organization  as happened with an organization with which I was associated some time ago but that's another story.  Anyway, in comes Tidjane and the reorg begins.

As the WSJ tells it one of the first top line guys to be replaced was a chap named Gael de Boissard, who, from his base in London ran all of Credit Suisse's global markets...that's fixed income, stocks--the usual suspects--and replaced him with a chap named Tim O'Hara who was based in New York.  That occurred on Oct. 21 of last year.   As the story goes, Mr. O'Hara immediately began to reorganize. Somewhere in heaven the founders of McKinsey & Co. smiled.

Between October and the end of the year, Global Markets managed to lose somewhere around $1 billion.  True to all McKinsey training it appears present management continually blamed the unit's previous management for the debacle.  And the losses mounted and become public earlier this year.  OK. these things happen and that's why poor Gael isn't there any more (he's been skiing for five months).  Only problem is, according to the WSJ, during the period in which the losses were occurring Gael had no responsibility, for the unit, reported to no one, made no decisions and was only involved in corporate activities when he attended his bank sponsored bye-bye party in New York in December.  Oops, does that mean Tim O'Hara was a mistake?  Well, we'll never know because during the loss period, Tim was reorganizing and not really managing anything.

To make a long story short, it appears that a global business at one of the world's prestige financial institutions was being managed by no one as it managed to lose over a billion dollars in what might come as no surprise in areas such as energy, junk bonds and restructured debt.  I assume they are still restructuring.

Now the average Joe on the street would probably shake his head in disbelief wondering how any sane parent could leave his kid alone at home with a box of matches--and he would be right.  Think of the reaction from people like Crazy Lizzy or Big Tony who come to the party with a wee chip on their shoulders with which to begin.  Sometime even I find it hard to blame them for demanding that the child be placed in protective custody.  And then you start to think about how the good, hard working employees of Credit Suisse are going to react when they hear a story like this about the people chosen to lead them...but it gets worse.

Apparently, not all the folks at the Bank were asleep at the switch.  It is reported that the risk management folks figured out that they had a problem and began hedging positions as fast as they could.  They were good; so good that the netting effect of the hedges was to reduce the loss to a mere $300 million.  OK you say, we can report that.  Uh huh.  Tidjane and his guys opted to report the  gross positional loss, not the net loss.  Why?  I'm really not sure nor do I understand under the accounting rules under which we used to operate how that could be done.  Of course being naturally suspicious, it's always good to have a BIG loss on which people can focus while a lot of other little things aren't going quite as one would like.  Sure makes it easier to cut bonuses as well.  But a McKinsey guy wouldn't think of those sort of things would he?  I mean assets can walk out the door any time right?  Why risk that?  I mean he ran a financial company...he ran Prudential Ins...........

As I keep saying, you can't make this stuff up.

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