Some of this is simple bad luck. Leveraged finance and its offshoots are Credit Suisse’s biggest and best investment banking business, but levfin had a rough patch. Credit Suisse was involved in the ill-fated Veritas LBO, but idiosyncratic decisions aside, nothing non-investment grade was safe last quarter.
But the bad luck should end, eventually. Leveraged lending is not a flash in the pan just for boom times, it’s vital to fund corporate activity. Stay the course, and there will be financings and fees aplenty.
The way chief executive Tidjane Thiam chose to deal with the terrible numbers was encouraging. Credit Suisse opened up its books and offered reassurance.
The bank gave a huge amount of detail for one in an industry more accustomed to single lines and percentage decreases (formerly increases) — levels of underwriting commitment, industry exposures and ratings.
Credit Suisse could open its kimono because it had little to be ashamed of — only 3% of its leveraged lending was to the energy industry — but the methodical approach demonstrated the same attention to detail and disclosure that was on display in October, when the bank explained its new approach in a seven hour strategy marathon.
Banks can’t reshape their business every year to be good at whichever product is on the way up — Credit Suisse’s levfin pedigree dates back at least to Donaldson, Lufkin & Jenrette, bought in 2000 — and so they have to ride out the times when the market goes the other way.
Banks can, however, hire CEOs who help them through the tough times. The year ahead looks like it will be grim for all investment banks, whatever their business model. But Credit Suisse should look beyond this week’s loss, and stick to its guns. It looks like it’s in good hands.