Harris Associates Cuts Ties with Credit Suisse: Bank’s Biggest Shareholder Sells Entire Stake
Mar 06, 2023
After approximately two decades of ownership, Harris Associates' stock picker David Herro terminated the firm's association with Credit Suisse Group AG by selling off their complete stake in the bank. As a result of this decision, the bank's already problematic situation has become even worse.
Credit Suisse has been enduring a crisis for many months now, and the emergency plan it launched in October was seen by various analysts as the bank's last hope. The strategy centered around asset management business with an aim to cut 9,000 jobs over five years while also slashing its cost base by 14.5 billion Swiss francs within three years.
The bank also intends to divide the investment bank into three segments. The investment bank was once the company's cash cow, but a string of scandals has cost Credit Suisse billions of dollars in losses and regulatory fines.
Moreover, the company is selling a "significant portion" of its Securitized Products Group division.
However, since the launch of its recovery plan, Credit Suisse has endured several scandals that have hindered its attempts at revitalization.
On February 13th, Credit Suisse alerted their employees via email that a former employee held access to the confidential personal data of both current and ex-employees.
This former employee, who had legitimate access to the data during his time in the bank, violated company policy by copying and transferring the data onto a personal hard drive. Currently, the employee does not work at the firm.
The stolen data encompasses employee identifiers, including Social Security numbers and ID tags, alongside contact information, immigration status, dates of birth, and gender. Moreover, the thief has acquired compensation records from 2013 to 2015 for all included personnel — covering both salaries as well as any other variable payments distributed.
Not long after, reports began circulating that FINMA, the Swiss financial regulator, was taking a closer look at statements made by Axel Lehmann, Chairman of the Board of Directors, from last fall.
At the time, Credit Suisse's wealthy Wealth Management clients were rapidly withdrawing their funds due to fears and rumors surrounding the financial strength of the bank. These worries threatened to destabilize what was meant to be a cornerstone of "The New Credit Suisse."
Outflows raised concerns about Credit Suisse's future profitability because if the bank does not have enough assets to handle, its fees will definitely decline.
To restore trust among the bank's clients, Lehmann stated at a conference on December 1st that customer outflows had ceased. He then proceeded in the interview with Financial Times that after large outflows in October, the withdrawals had "fully stabilized" and even began to "revert."
Credit Suisse's Biggest Backer Sells Its Entire Stake
Credit Suisse's 2022 annual and fourth quarter figures showed that 110.5 billion Swiss francs ($119.65 billion) were taken out by customers over the last three months of the year – indicating that customer withdrawals had been ongoing even at Lehmann's time of speaking.
Therefore, the question is: Did Lehman mislead investors to bolster Credit Suisse's share price?
Credit Suisse's stock was already in a downward spiral for several months prior to the news, yet things have only gotten worse. Harris Associates — one of the bank's primary investors over many years — has now divested its entire stake, according to reports from The Financial Times.
David Herro, Chief Investment Officer for international equities at Harris, told a newspaper that rising interest rates have caused a number of European financials to go in the opposite direction. Aside from that, he asked why someone would invest in something that is diminishing capital when the majority of the sector already produces it.
Herro is fiercely critical of Credit Suisse's strategic plan and specifically condemns the suggested investment banking spin-off, citing it as too "cumbersome," which will result in wasteful use of funds.
Harris, a premier Chicago-based investment firm managing an extraordinary $86 billion in assets as of September 30th, 2022, purchased a large portion of Credit Suisse 20 years ago - elevating them to the title of largest shareholder.
After the 2008 financial crisis, American firm Harris Corporation cut its stake to turn a profit. More recently, it has begun to criticize the bank's varied tactics and strategies.
Last January, the firm again reduced its participation below the mandatory reporting threshold of 3%. Harris did not participate in Credit Suisse's capital raise late last year, which diluted its shares. This decision was a sign that the firm was not convinced by the emergency plan of the Credit Suisse.
After Harris Associates left Credit Suisse's largest shareholder seat, the Saudi National Bank took its place as the biggest investor.