Brady Dougan Holds Course at Credit Suisse Despite Tough Markets

The Credit Suisse CEO sticks to the One Bank strategy of investment banking and wealth management as new capital rules pose his toughest challenge yet.


Since the financial crisis, many bankers have been looking to Asia to drive growth amid a difficult operating environment in the U.S. and Europe. Brady Dougan has more reason than most to do so.

Last year a U.S. Senate panel grilled the CEO of Credit Suisse about the bank’s history of helping Americans evade income taxes with secret Swiss bank accounts. To settle the case, Dougan had his bank plead guilty to U.S. criminal charges — the first big bank to do so in decades — and pay $2.6 billion in fines, blowing a big hole in the group’s profits. Credit Suisse suffered a net outflow of Sf1.5 billion ($1.5 billion) in assets from wealthy American and European clients in the third quarter of 2014.

Yet in Asia business is booming for Dougan and Credit Suisse. The bank enjoyed Sf6.2 billion of net inflows of assets in the region in the third quarter, more than offsetting outflows from the U.S. and Europe. Credit Suisse’s investment bankers have also enjoyed a hot hand in Asia, gaining market share and capturing a slice of Alibaba Group Holding’s record $25 billion initial public offering last year.

For Dougan, such results validate the group’s cross-selling strategy, which aims to persuade investment banking clients to use Credit Suisse wealth management services — and vice versa. Since taking over as CEO in 2007, Dougan has aggressively promoted the so-called One Bank concept launched by his predecessor in 2006. Although some analysts and investors remain skeptical that the strategy is all it’s cracked up to be, Credit Suisse insists One Bank is working and asserts that synergies between the two divisions generate about 20 percent of the group’s net revenue. Wealthy Asian clients are playing a crucial role in driving that growth.

“Asia is an example of a region where the One Bank policy is working very well,” Dougan says in an interview at Credit Suisse’s New York offices on a snowy January day. “There is still a lot more upside for us in Asia.”

Investors must be hoping he’s right. The big U.S. fines were a major factor in the 58 percent drop in Credit Suisse’s net income in the first nine months of 2014, to Sf1.18 billion, but they were not the only one. Revenue in private banking and wealth management declined 6 percent in the period, to Sf9.41 billion, largely because of lower net interest income in today’s ultralow-rate environment. As Dougan himself acknowledges, “We still have to demonstrate robust growth in the wealth management business.”

Meanwhile, Credit Suisse has had to take a pruning knife to its investment banking business. This has included reversing an ill-judged expansion of its rates, or government bond, business, which Dougan had ordered in the immediate aftermath of the 2008–’09 crisis. Losses in these units depressed the division’s pretax profits by Sf1.07 billion in the first three quarters of last year.

Credit Suisse also faces regulatory headwinds going forward. After the Swiss government stepped in to bail out UBS in 2008 following that bank’s massive losses on U.S. subprime mortgage securities and other bad assets, the authorities, determined to end the “too big to fail” problem, imposed some of the toughest capital requirements in the world on its two big banks. Now Bern is preparing to go one step further: Early this year the authorities are expected to announce plans to raise the leverage ratio — a more stringent metric that measures capital as a percentage of total assets rather than just risk-weighted assets — for Swiss banks.

“The biggest question mark is over how much regulatory capital Credit Suisse needs and whether the regulators will keep heaping on excess capital requirements,” says David Herro, chief investment officer for Chicago-based Harris Associates, one of Credit Suisse’s biggest shareholders, with a 7.7 percent stake. Herro remains a believer in the One Bank concept, though. “It’s about using both sides of the house,” he says. “If Credit Suisse takes a company public and the principals have proceeds to invest, this model makes sense.”

Dougan insists Credit Suisse can meet any new capital requirements and get growth back on track, but the concerns have weighed on the bank’s share price. In the 52 weeks ended January 15, Credit Suisse’s stock fell 29 percent, compared with declines of 23 percent for UBS and 11 percent for the STOXX Europe 600 banks index. “The market questions the sustainability of the investment bank,” says Kinner Lakhani, a London-based banking analyst at Citigroup.

As if Dougan didn’t have enough to worry about, his bank took a big hit on January 15, when the Swiss National Bank suddenly reversed policy and abandoned its three-year-old cap on the Swiss franc at 1.20 to the euro. The franc soared nearly 20 percent in response. Investors fear the move will depress profits at Credit Suisse and UBS, whose wealth management units handle assets denominated mostly in other currencies but incur costs largely in Swiss francs. Credit Suisse’s share price plunged 19.4 percent in the first two days of trading after the central bank’s announcement.

Dougan, the first American to take sole charge of the Swiss bank, has shown remarkable durability since being named CEO. He is one of only three CEOs of major international banks — alongside Lloyd Blankfein of Goldman Sachs Group and Jamie Dimon of JPMorgan Chase & Co. — who have held their posts since the financial crisis erupted. Under Dougan’s guidance, Credit Suisse emerged from the global financial crisis in better shape than many of its rivals. Unlike UBS, it avoided heavy exposure to subprime U.S. mortgage securities and did not need a Swiss taxpayer bailout. Dougan’s position appears secure today notwithstanding the bank’s guilty plea last year, which sparked calls for his resignation from some Swiss politicians.

Yet Credit Suisse and Dougan face significant challenges going forward. Although ranked among the top five in several investment banking categories, Credit Suisse doesn’t have the size and breadth to compete across the board with the likes of Goldman, JPMorgan Chase and Deutsche Bank. And even though Credit Suisse is the fifth-largest wealth manager in the world, it has less than half the assets under management of global leader UBS. The imposition of ever-higher capital charges will make it difficult for Credit Suisse to generate strong returns and could force Dougan to make some tough choices about what business lines to support.

“We think CS is running out of time to change its strategy considering the ever-tougher regulatory environment and structural challenges it faces,” analysts at Berenberg Bank wrote in October.

UBS responded to the pressures by taking a much bigger knife to its investment bank. It slashed the division’s risk-weighted assets by 31 percent in 2012 to devote more resources to wealth management. By some measures, investors seem to approve that choice: UBS shares traded at about 1.02 times book value at the start of 2015, compared with just 0.68 for Credit Suisse. “People expect wealth management from a Swiss bank,” says Martin Janssen, chief executive of Zurich-based ECOFIN Research and Consulting, which offers investment advice to the leading Swiss pension funds.

Dougan promises to perform further pruning of the investment bank, but he remains fully committed to the operation, as one might expect from a lifelong investment banker who came up through the ranks on some of Wall Street’s leading derivatives-, bond- and equity-trading desks. He sees investment banking as crucial for Credit Suisse’s future, both as a profit center in its own right and as a vehicle for generating synergies with wealth management. His personnel moves reflect that outlook. “Even the private bank at Credit Suisse is largely headed by former investment bankers,” says Andreas Venditti, a Zurich-based analyst for Bank Vontobel who spent several years working for Credit Suisse’s private bank.

Robert Shafir worked for 17 years as an investment banker at Lehman Brothers Holdings before joining Credit Suisse in 2007 as CEO for the Americas; he also serves as co-head of private banking and wealth management. “I’ve lived on both sides of the fence, and that helps make me a big believer in the One Bank concept,” says Shafir, who works out of Credit Suisse’s office on New York’s Madison Square Park.

The strategy is paying its biggest dividends in Asia. In the three years ended September 30, 2014, assets from ultrahigh-net-worth clients — individuals with at least $50 million in financial assets — more than doubled in Asia; they now account for 10.8 percent of the Sf860 billion in wealth management assets at Credit Suisse. Neither UBS, with Sf1.94 trillion in wealth management assets, nor Deutsche Bank, with €294 billion ($340 billion), disclose asset figures for ultrawealthy clients.

According to Helman Sitohang, Credit Suisse’s Singapore-based CEO for Asia-Pacific, the bank’s wealth management assets in Asia are increasing at twice the industry’s growth rate in the region. The bank also generates its highest investment banking returns in Asia, he notes.

Last year Credit Suisse ranked fifth in Asia ex-Japan investment banking revenue, with $337 million, good for a 3.7 percent market share, according to Dealogic. Goldman Sachs was the leader, with $389 million in fees and a 4.2 percent share. In 2013, Credit Suisse tied for second with JPMorgan, with $296 million in revenue and a 4.3 percent market share.

The Asian Superrich targeted by Credit Suisse and just about every other global bank are different from their European and American counterparts in that their wealth is so freshly minted. Typically, Credit Suisse clients in the Far East are entrepreneurs seeking investment banking products and services: loans and debt issues; help in raising equity through IPOs; and hedges against shifts in interest rates, currencies and commodities. Many of these entrepreneurs also seek help with expanding their investments beyond their core businesses and domestic markets.

On the wealth management side, rich Asian clients also make different demands than do their European counterparts, who tend to be older, more concerned with inheritance issues and represented by family offices that operate like corporations. “In China you are dealing with a new entrepreneur who has younger children and is still growing his business,” says John Zafiriou, head of Solution Partners, an arm of Credit Suisse’s private bank that creates investment banking products for wealthy clients. “You need to build up personal relationships, because you are dealing with the owner, not a family office.”

That explains why Zafiriou’s Asian operation, which began a decade ago with mostly Westerners as employees, is now almost entirely staffed by Asians. Every employee in China speaks Mandarin.

Personal relationships were critical in winning Credit Suisse a role as one of six underwriters for Alibaba’s massive IPO. “We have had a relationship with Alibaba for years,” Dougan says.

Imran Khan was a key player in that relationship. As an equity analyst and head of global Internet research for JPMorgan Chase, Khan covered Alibaba and befriended vice chairman Joseph Tsai. Tsai urged Khan to become an investment banker, and in 2011 Credit Suisse hired him as head of Internet investment banking.

Leveraging his connections at Alibaba, Khan helped Credit Suisse secure a role in a number of transactions for the e-commerce giant. In 2012 he led an $8 billion private financing effort for Alibaba, with Credit Suisse buying a $50 million convertible bond as part of the deal. “At the time, Alibaba’s valuation was much smaller, so it wasn’t a slam-dunk deal to raise the financing,” Sitohang says. The Chinese company returned the favor two years later when it went public.

Khan and his boss, Vikram Malhotra, head of Asia-Pacific investment banking, worked closely with Tsai, who was delegated by Alibaba founder and chairman Jack Ma to prepare the company for an IPO. In 2012, Malhotra and Khan advised Tsai on the $7.6 billion repurchase of half of the 40 percent stake in Alibaba that Yahoo had acquired in 2005 for $1 billion. Two years later Credit Suisse joined Citigroup, Deutsche Bank, Goldman Sachs, JPMorgan Chase and Morgan Stanley to underwrite the IPO. The firms shared $300 million in underwriting fees — a record for an IPO. Credit Suisse reaped a far greater bounty from the $50 million convertible bond it had bought as part of the 2012 financing, which valued Alibaba at $45 billion. Alibaba recently boasted a market cap of $258 billion, slightly greater than that of Procter & Gamble Co., and Credit Suisse’s investment (it exchanged its convertible bond for shares) is worth about $300 million. In December, Khan left Credit Suisse to become chief strategy officer for Snapchat, a Venice, California–based company known for its popular messaging app.

The Alibaba transaction was a coup for Credit Suisse. The big question now is whether the bank can translate that underwriting mandate into wealth management success. The IPO instantly created a handful of billionaires that Credit Suisse’s private bank is courting, in the face of stiff competition from rivals. “We are very keen to have any clients we have done a deal for on the investment banking side to work with our private bank,” Sitohang says. “Having used our investment bank, it makes sense for them to use our products and services on the private banking side as well.”

Besides luring the ultrawealthy, Credit Suisse is also trying to woo the larger pool of high-net-worth customers, defined as having $1 million or more in financial assets, created by the IPO. Some 1,400 current and former Alibaba employees received stock options now worth at least $1 million as part of the offering.

At times, the wealth management side of Credit Suisse has played the lead role in an investment banking transaction involving an Asian client. This was the case in the July 2014 sale of a majority stake in Forbes Media for an undisclosed sum.

Acting on behalf of Forbes, the New York investment banking office of Credit Suisse contacted a relationship manager in its private bank in Asia. The manager brought the proposal to Integrated Whale Media Investments, a group of international investors that includes Hong Kong’s Tak Cheung Yam and Wayne Hsieh, co-founder of ASUSTeK Computer, a Taiwanese maker of PC components, tablets and smartphones. The consortium’s main stakeholders were longtime Credit Suisse wealth management clients who had expressed their desire to acquire a media asset. “Initially, they were looking in India, but they became much more interested in Forbes as one of the best-known U.S. media companies,” Solution Partners’ Zafiriou says. Credit Suisse’s investment bank acted as financial adviser to the consortium and provided financing.

Under the terms of the deal announced on July 18, IWM took a majority stake of undisclosed size, while the Forbes family kept a “significant ownership stake” and asserted it would remain actively involved in the media group.

CREDIT SUISSE WAS BORN IN the 19th century as a lender to the high-tech enterprises of that era. Entrepreneur Alfred Escher established the bank in 1856 under the name Schweizerische Kreditanstalt to finance the construction of Switzerland’s railways and electricity grid. In the early 1900s it ventured into retail banking to cater to a growing middle class; it was the largest Swiss bank for most of the century.

Its transformation into a global power began in 1978, when it partnered with the old First Boston Corp. and created Credit Suisse First Boston, a Eurobond market powerhouse with a sizable footprint on both sides of the Atlantic. In 1988, when a large business loan from First Boston went sour, Credit Suisse bought a 44.5 percent share in the U.S. bank; it took majority ownership two years later.

Over the next decade Credit Suisse embarked on an aggressive expansion strategy. In 1997 the bank spent Sf13.4 billion to acquire Swiss insurer Winterthur Group, hoping to become a leader in the then-budding bancassurance market, as the combination of banks and insurers was known. The following year Credit Suisse approached rival Union Bank of Switzerland with a merger proposal, only to be spurned and see Union merge with Swiss Bank Corp. to create UBS, the country’s dominant bank. In 2000, at the peak of the technology-driven IPO boom, Credit Suisse shelled out $11.5 billion to acquire Donaldson, Lufkin & Jenrette in a bid to bolster its U.S. business. Even then it was trailing in the wake of UBS, which just weeks earlier had paid $12 billion to acquire Paine Webber and Co.

Rather than securing Credit Suisse’s place in the global bulge bracket, the deal making stretched its resources and blurred its focus. DLJ never delivered the business boost that the bank sought, while Winterthur suffered big securities losses, pushing its parent into the red and becoming a drain on capital. Credit Suisse sold the insurance arm to France’s AXA for Sf12.3 billion in 2006.

In search of a new strategy and lagging far behind UBS in wealth management, Credit Suisse launched its One Bank concept in 2006 under then-CEO Oswald Grübel. However, the strategy is most identified with Dougan.

Dougan, 55, is a quiet Midwesterner, born in Urbana, Illinois, the son of a railway dispatcher. After graduating from the University of Chicago in 1982 with a bachelor’s degree in economics and an MBA, he joined Bankers Trust Corp. in its fledgling derivatives unit, then a pioneer in the burgeoning market for interest rate and currency swaps. He moved to Japan in 1983 to establish a bond underwriting division and worked closely with Allen Wheat, who ran the bank’s capital markets business there. When Wheat moved to Credit Suisse First Boston in 1990, Dougan was part of a Bankers Trust team that went with him. At CSFB, Dougan rose to head the equity division in 1996 and, five years later, global securities. In 2004 he was named head of CSFB after John Mack, then group co-CEO and head of the investment banking arm, was forced out after a power struggle with Grübel. Grübel stepped down in 2007, paving the way for Dougan to take sole charge of the storied Swiss bank.

The CEO is famous for his 16- to 18-hour workdays, typically begun after a long run along the shores of Lake Zurich. A competitive runner, Dougan boasts a best marathon time of 3 hours 20 minutes. He drives to work in a Toyota Prius and wears off-the-rack business suits. He rarely socializes, spending most of his free time at home with his second wife, a former college girlfriend. His media appearances are usually confined to quarterly earnings conference calls.

One glaring exception to Dougan’s avoidance of the limelight was his appearance in February 2014 at the U.S. Senate hearing on allegations that Credit Suisse helped American clients illegally evade taxes for more than a decade. “There is no issue that has taken more of our time over the past five to six years,” he admitted in a conference call last July, after the bank reported a Sf700 million second-quarter loss because of the big U.S. fines it paid to resolve the case.

Dougan took no small amount of heat for the tax scandal. In May 2014, the Social Democratic Party, Switzerland’s second-largest political party, called for Dougan and bank chairman Urs Rohner to resign. “The credibility of Credit Suisse managers is dead,” party leader Christian Levrat told a Swiss newspaper. The CEO rode out the storm and appears to have gathered strength.

Any new CEO for Credit Suisse would presumably come from a triumvirate of loyalists appointed by Dougan in October as co-heads of the investment bank: Gaël de Boissard, 47, who leads the fixed-income business and serves as chief executive for Europe, the Middle East and Africa; Timothy O’Hara, 50, who runs equities; and James Amine, 55, who oversees M&A and the investment bankers who cover industry sectors and countries.

Dougan has shown staying power since the crisis, despite some missteps. Although UBS needed a Sf43 billion bailout from the federal government and the Swiss National Bank to plug the hole in its balance sheet, Credit Suisse was able to raise Sf10 billion from Middle Eastern and other investors in 2008.

When fixed-income markets roared back to life in 2009, Dougan made a bold expansion move to capitalize on the rebound. Between 2009 and 2012, Credit Suisse increased its head count and distribution in macro, including its government-bond-trading business, by more than 25 percent. Returns never justified the expense, though. “In rates you need to be equally strong in institutional, corporate and sovereign markets to make the franchise work,” says Citi’s Lakhani. “But Credit Suisse doesn’t have as extensive a network as JPMorgan Chase, Citi or Deutsche Bank.”

The expansion also drew the attention of the central bank, which ordered Credit Suisse to bolster its capital to back its expanded trading operation. Dougan complied, persuading shareholders to buy nearly Sf6 billion in contingent convertible bonds, or CoCos, which at the time were a virtually untested debt instrument. But the incident underscored a continuing dilemma: Regulators keep demanding higher requirements, forcing investment banks to weigh further cutbacks in their operations.

The Basel Committee on Banking Supervision’s decision last year to adopt a new leverage ratio, which requires banks to hold capital equal to 3 percent of their total assets, sent Dougan and his team back to the drawing board. In October, Credit Suisse announced plans to cut Sf70 billion in risk-weighted assets, or 24 percent of the total, by the end of 2015, which should boost the bank’s leverage ratio to 4.5 percent from 3.8 percent currently. It remains to be seen whether that will be enough. “CS remains the most challenged of the European investment banks on capital and leverage ratios,” concluded a November 2014 equity research report by Barclays following the announcement of Credit Suisse’s third-quarter results.

In December an advisory commission headed by Aymo Brunetti, a University of Bern economist, recommended raising the leverage ratio substantially for Credit Suisse and UBS. The panel didn’t specify a precise figure but noted that the U.S. is requiring systemically important banks to achieve a 5 percent leverage ratio. The Swiss Federal Council, the seven-member executive branch, is due to decide how to implement the commission’s findings early this year.

Rates and commodities have taken the brunt of cuts at Credit Suisse thus far. “We have dramatically shrunk our macro business in reaction to the changing regulatory and business outlooks in those areas,” says investment bank co-head Amine. “And we continue to examine each of our businesses to make sure they are worth keeping and investing in over time.” Prime brokerage is likely the next business to be targeted, according to analysts.

To allay investor concerns about the size of the investment bank, Credit Suisse has promised to achieve a 50-50 balance in risk-weighted assets between its investment bank and wealth management business within three years. “I would think it absolutely looks possible,” Dougan says. Currently, the investment bank holds 57 percent of the group’s Sf286 billion in risk-weighted assets.

Credit Suisse is not likely to make the kind of drastic investment banking cutbacks that UBS has because it enjoys a number of leading franchises. Last year Credit Suisse ranked No. 1 in Swiss franc bond securitization, with a 30.55 percent market share and deals worth $21.4 billion; fourth in syndicated loan revenue in Europe, the Middle East and Africa, with a 5.69 percent share and deals totaling $930 million; fourth in European high-yield bonds, with a 5.73 percent share and deals worth €6.6 billion; and fifth in global structured finance, with an 8.04 percent share and $57 billion in deals, according to Dealogic.

In Asia ex-Japan, Credit Suisse ranked fourth in equity capital markets, handling $12.5 billion in transactions, good for a 5.3 percent market share. Morgan Stanley led the region with a 7.2 percent share, handling $17 billion worth of deals. In G3 high-yield bonds in Asia-Pacific, which covers dollar, euro and yen issuance, Credit Suisse ranked eighth, with transactions worth $119 billion and a 4.7 percent share; UBS was the leader, with deals worth $277 billion and a 10.8 percent share. And in completed mergers and acquisitions, Credit Suisse ranked fifth, with an 8 percent share and $44.5 billion in deals; Morgan Stanley led the way with a 12.3 percent share and $67.85 billion in transactions.

“The new regulatory environment affects every player in the market,” says Vontobel’s Venditti. “But if you’re one of the top three or five players in a market, you will be less affected than a top ten player, as was often the case with UBS and which made it easy for them to exit those markets.”

To demonstrate that the One Bank strategy is working, Credit Suisse publishes quarterly figures on revenue generated by collaboration between the investment banking and wealth management divisions. It is the only major bank that publishes such a metric, setting a target of getting 18 to 20 percent of net revenue from such collaboration. In the third quarter of last year, the bank hit the 18 percent mark. “We have a CEO who is very eager to measure things,” Amine says.

But some investors contend that other metrics show the One Bank approach isn’t working. Credit Suisse’s return on equity was just 9.3 percent in the first nine months of 2014, well behind the bank’s target of 15 percent. Credit Suisse has also fallen short of its goal of reducing its cost-to-income ratio to 70 percent; the figure actually rose, to 83 percent, in the first nine months of 2014 from 79 percent a year earlier. UBS reported a 90.3 percent cost-income ratio for the first nine months of 2014, up from 86.7 percent a year earlier.

Dougan’s strategy faces its toughest test in Europe, especially on the wealth management side. Margins are down and profits are minuscule in the plain-vanilla interest-bearing accounts that were long a staple of Swiss private banking, and Credit Suisse has taken a reputational hit over its efforts to help wealthy European clients evade taxes.

Beginning in 2007, a former Credit Suisse employee sold to German tax authorities compact discs identifying some 2,500 German citizens holding numbered Swiss accounts with combined assets of as much as Sf2 billion. The ensuing furor in Germany and throughout the European Union pressured the Swiss government and banking community to close the accounts and force the account holders to pay their back taxes and fines.

With the end of banking secrecy and tax benefits, Swiss banks can no longer count on the easy money they made from numbered accounts. Some banks have had success luring this formerly offshore money into onshore accounts in various European countries. Despite outflows from former secret-account holders, UBS showed Sf1 billion in net new money from Europe in the third quarter of 2014. “The outflows were more than offset by the businesses that UBS has onshore in the different European countries,” Venditti says.

Credit Suisse doesn’t have as extensive an onshore network in Europe as UBS, though. As a result, the bank continues to suffer net outflows in Europe — more than Sf1 billion in the third quarter of 2014 alone.

The bank is trying to refashion its European wealth business by going aboveboard and upmarket. To replace the merely affluent German or French client of yesteryear who might deposit €300,000 in a numbered account in Geneva or Zurich, Credit Suisse is trying to attract much wealthier clients — including those with €50 million or more in assets — with more-sophisticated wealth management products and services. The bank doesn’t aspire to be their sole bank, but it hopes for a share of their wallets by touting Switzerland as a politically stable, economically healthy nation.

“Given the economic situation in Western Europe, if you are an Italian or Spanish entrepreneur, you want to have risk diversification — fully taxed and compliant,” says Hans-Ulrich Meister, Credit Suisse’s Zurich-based co-head of private banking and wealth management. “And in Switzerland we can offer services that are second to none.”

But Swiss chocolates, snowy Alpine slopes and predictable government policies aren’t enough by themselves to attract the business of a 70-year-old Mittelstand machine tool factory owner from Stuttgart, advised by a family office, who wants to sell his company and invest the proceeds for his heirs. “When he comes to us, we can create solutions for him — together with our investment bank — such as an IPO or trade sale,” says Meister. “This type of service can generate good fees and margins, but you have to deliver good value.”

Credit Suisse continues to struggle in the U.S., largely because of high litigation costs and reputational damage. About half of the Sf5.1 billion in litigation charges that Credit Suisse has taken in the past few years have been penalties for helping wealthy Americans avoid taxes. By comparison, UBS’s litigation charges have totaled Sf8.8 billion, but the bank avoided criminal prosecution.

In a statement following Credit Suisse’s plea last May, Dougan insisted that there had been “no material impact on our business resulting from the heightened public attention on this issue.” Yet Credit Suisse Americas, which encompasses Latin America and the U.S., had only Sf1.8 billion (then worth $1.9 billion) in net inflows in the first nine months of 2014, well behind the $4.5 billion in inflows recorded in that period by UBS Wealth Management Americas. “Credit Suisse showed good inflows in Latin America, but in the U.S. they are restructuring their wealth management business because it is losing money and clients,” Venditti says.

“We are gaining momentum in the U.S.,” insists Credit Suisse Americas CEO Shafir. Without disclosing numbers, he says higher revenue allowed the U.S. business to break even in the first nine months of 2014. The bank is also ramping up its One Bank concept by offering U.S. private banking clients greater access to investment banking businesses — such as technology, energy and private equity — where Credit Suisse Americas is strongest.

Credit Suisse supporters and skeptics agree that the bank’s share price will continue to suffer until there is clarity about capital requirements, including the leverage ratio. The crisis demonstrated that Credit Suisse and UBS are indeed too big to fail, and created almost unstoppable momentum for higher capital charges. The combined balance sheets of the two banks are about three times Switzerland’s gross domestic product — and that’s after cutbacks that saw UBS slash its total assets from a 2006 peak of Sf2.57 trillion to its current Sf1.05 trillion and Credit Suisse shrink from Sf1.47 trillion to Sf954 billion over the same period.

Questions about capital loom largest for Credit Suisse because of its more extensive investment banking activities, especially the capital-intensive fixed-income, currencies and commodities business.“Regulation could make it difficult for Credit Suisse to maintain leading positions in many FICC activities,” says Citi’s Lakhani.

If that’s the case, Credit Suisse could be faced with several unpleasant options, including raising capital, cutting dividends or drastically shrinking its investment bank. Dougan has no wish to do the last. He asserts that CoCo bond raisings have provided “a real cushion of capital” to cover some of the expected new leverage requirements. He adds that, if necessary, Credit Suisse will issue total loss-absorbing capacity debt, known as TLAC, to cover the remaining capital needs.

“As long as the new Swiss regulatory requirements include those elements in a balanced way, they will be pretty manageable,” says Dougan. “If they require a lot of common equity, specifically, then it would force banks to put more equity on the books, and that would be a difficult outcome.”

For Credit Suisse executives, the continued uncertainty over capital requirements is the greatest frustration. As wealth management co-head Meister puts it, “Regulators and politicians are in the driver’s seat.” • •

Please see a follow up to this story on Dougan’s planned departure from Credit Suisse.

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