Credit Suisse Group's Oswald Gruebel and John Mack presented the biggest annual loss in European banking history as they made their public debut as co-chief executive officers of the second-largest Swiss bank.
The loss of SF3.3 billion (US$2.4 billion) is more than twice the combined 2002 losses of HVB Group and Commerzbank AG, two of Germany's biggest lenders. Gruebel and Mack are slashing costs, cutting jobs and selling businesses after three years of falling stock prices and US$22 billion in acquisitions.
Credit Suisse expects to become profitable this year, helped by lower costs after investment losses, bad loans, legal expenses and falling investment-banking revenue erased profit last year. The company said today it will cut an additional 1,250 jobs in Switzerland, including 350 jobs at the Winterthur insurance unit.
"They have to thoroughly change their strategy in 2003," said Thomas Buri, who helps oversee about SF120 billion at Pictet & Cie and has been selling Credit Suisse shares since December. "They have to clean house."
Mack and Gruebel have to scale back a five-year expansion into insurance and investment banking that was led by former CEO Lukas Muehlemann, investors said. The purchases made Credit Suisse more vulnerable to falling equities than rival UBS AG, which spent the late 1990s cutting costs after it was created from the merger of Swiss Bank Corp and Union Bank of Switzerland in 1998.
Muehlemann left in December after five years, making way for Mack, 58, the former Morgan Stanley president who heads the Credit Suisse First Boston securities business in New York. German-born Gruebel, 59, was brought out of retirement in July to replace Thomas Wellauer and oversee the Credit Suisse Financial Services unit that includes private and consumer banking and insurance.
Muehlemann was replaced as chairman by Walter Kielholz, the former CEO of Swiss Reinsurance Co, the world's No. 2 reinsurer.
Muehlemann, 52, bought the New York-based investment bank Donaldson, Lufkin & Jenrette Inc. in 2000 for US$13 billion to strengthen Credit Suisse First Boston's telecommunications and junk-bond businesses. Three years earlier he paid SF13.3 billion for Switzerland's Winterthur Insurance Co as a cushion against losses from other units and to cross-sell products to the two companies' customers.
double whammy
Both purchases backfired as stock markets soured. Mack has spent the past 19 months cutting costs, including 6,500 jobs, at Credit Suisse First Boston as mergers and share sales dwindled.
Credit Suisse Financial Services is cutting about 1,600 jobs to pare expenses amid lower fees and commissions from wealthy clients and insurance losses. The unit will cut an additional 900 jobs in private and consumer banking, Credit Suisse said today.
Winterthur's insurance and life and pensions businesses together had about SF2.4 billion in losses last year as lower stock markets forced it to write down the value of investments.
"Credit Suisse will have to prove itself in 2003," said Christoph Ritschard, an analyst at Zuercher Kantonalbank who rates the shares "market performer." "Last year it set important cornerstones, getting rid of some old burdens and securing itself against future risks."
Winterthur returned to profit in the fourth quarter after cutting the amount of equities in its funds to 6 percent from 18 percent at the start of last year. The insurer had SF131.3 billion in investments at the end of December.
"The question is whether the writedowns from the losses on the equity portfolio of Winterthur are enough, or if there is still more to come this year," said Michel Raemy, who helps manage about 1 billion francs at Banque Bonhote & Cie, including Credit Suisse shares.
Credit Suisse's fourth-quarter loss stemmed from expenses at Credit Suisse First Boston. The division had a US$811 million loss after it set aside US$450 million for lawsuits claiming it issued biased stock research, sought kickbacks for shares of new stock and defrauded investors of Enron Corp, the failed energy trader.
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