Credit Suisse 'a drag' for Herro awaiting overhaul success

[LONDON] Credit Suisse Group AG, whose shares have lost about 40 per cent since chief executive officer Tidjane Thiam announced an overhaul in October, "hasn't worked" as a long-term investment for one of its biggest shareholders, Harris Associates LP.

"We've owned Credit Suisse for a long time - it hasn't worked, it's been a drag on our numbers,' David Herro, chief investment officer of Chicago-based Harris Associates, said in an interview with Tom Keene on Bloomberg Radio on Monday.

"They are now well capitalized. Some of these things can really take a lot of time to work and I do hope it will." Mr Thiam, 53, who took the top job last year, has failed to restore investor confidence in Switzerland's second-largest lender as he's restructuring businesses to meet tougher capital rules and bolster profitability. While he's staked much of his strategy on growth in wealth management and scaled back from investment-banking businesses including macro trading and prime services, the shares extended losses this year.

While Harris Associates has held stock in Credit Suisse for more than a decade, other investors have fled. Credit Suisse shares have dropped about 33 per cent this year after decreasing 11 per cent in 2015, hitting the lowest since 1989 last month.

The lender has lost about 80 per cent of its value over the past decade, peaking at about 91 Swiss francs in May 2007.

Europe's largest lenders are under pressure to raise capital to meet regulatory requirements while shrinking their riskier securities businesses. Under Mr Thiam, who took over from Brady Dougan, Credit Suisse sold about 6 billion francs (S$8.43 billion) in stock, while announcing plans to eliminate thousands of jobs and selling parts of its Swiss unit.

Deutsche Bank AG has dropped about 25 per cent this year, with co-CEO John Cryan saying last week that he doesn't expect the German lender to report a profit for 2016. The bank said earlier this month that it doesn't expect to boost its capital buffers this year amid costs tied to restructuring, litigation and winding down assets.

Harris Associates is already "overweight" on banks and doesn't plan of adding any other firms, according to Mr Herro. The chief investment officer said he prefers lenders including France's BNP Paribas SA and Britain's Lloyds Banking Group Plc to Deutsche Bank.

"If you look at European commercial banks, they're extremely well run, extremely well capitalized," he said. BNP Paribas "are a solid, strong European bank with a good capital position. I'd rather buy that" than Deutsche Bank.

BLOOMBERG