CS Credit Suisse Group

By Jenny Strasburg, John Letzing and Max Colchester 

Current and former executives at Credit Suisse Group AG, stretching from New York to the Swiss lender's top ranks in Zurich, are sparring over who was responsible for the bulk of almost $1 billion in losses in recent months, according to people familiar with the matter.

One particular point of dispute: Past and present top executives of the investment bank have given differing accounts of who was in charge of what during a critical period for the loss-making trading business late last year.

The ongoing dissension, details of which haven't been previously reported, adds to a sense of chaos at Credit Suisse, complicating an-already difficult task for its Chief Executive Tidjane Thiam, who is scaling back the lender's investment bank to satisfy investors and regulators. Mr. Thiam must do that while preserving morale and the reputation of the 160-year-old global bank.

Tensions have escalated ahead of Credit Suisse's annual meeting this Friday in Zurich, where Mr. Thiam will face shareholders whose stock has lost 41% since he took over in July.

The issue sprang into public view in March, when Credit Suisse announced bigger-than-expected losses in its business that trades bonds, issues debt and packages loans into customized securities. Mr. Thiam said he and his finance chief hadn't been made fully aware of looming risks until January.

The episode's roots reach back into the fall of 2015, with Oct. 21 being a pivotal date. That's when Mr. Thiam unveiled a sweeping reorganization of the bank.

As part of the overhaul, New York-based Timothy O'Hara was promoted to oversee Credit Suisse's entire global markets unit, which trades stocks and bonds and sells research to hedge funds, pension funds and other clients. Gaël de Boissard, until then the bank's London-based global head of fixed income, stepped down from that role and from the bank's executive board.

At issue now is the precise chain of command within the markets business over the next two months, when Mr. O'Hara was reorganizing his management lineup overseeing fixed income and other businesses and thousands of employees.

As losses mounted, Credit Suisse executives close to Mr. Thiam told employees and clients privately that mistakes were made by "previous management," according to people familiar with the discussions. They said the remarks, made as recently as in April, were directed at Mr. de Boissard, who left the bank in December.

But Mr. de Boissard told The Wall Street Journal through his lawyer that he "ceased to perform global head of fixed income duties of any kind with effect from the restructuring announcement" Oct. 21 and "ceased to have any reporting line to or from him." Mr. de Boissard said he no longer received relevant risk reports after that date.

Through his lawyer, Mr. de Boissard said his "only role in the intervening period" through the week of Dec. 7 was completing the handoff of U.K. entities to other managers, "as per the request of Credit Suisse." He attended a going-away party in his honor with colleagues Dec. 15 in Manhattan and left two days later on a five-month skiing trip.

As credit markets worsened late in the year, long-held distressed debt and loans became harder for Credit Suisse to sell, according to people familiar with the business. The positions included loans to companies at various stages of restructuring in the energy, utilities and housing industries, and securities backed by junk bonds. Amid the turmoil, supervision of the business involved reconfiguring reporting lines and even technology systems, which took until January, people inside the bank say.

And so as credit positions were plummeting in value, communications about the impact on the overall business fell through the cracks, according to people involved in the internal conversations. That created an incomplete picture for senior executives, bank officials including Mr. O'Hara have told employees, the people said.

Mr. O'Hara told employees on an April 13 conference call that during that period late last year, he still had not formally assumed complete oversight of the trading unit.

Mr. O'Hara also said that before January, others hadn't properly escalated concerns about trading risks in the business, according to people who participated in the call.

Some among the Credit Suisse old guard fault neither Mr. O'Hara nor Mr. de Boissard for the turmoil. Instead, they say, Mr. Thiam's own management and transition plans were so disjointed that such problems were inevitable.

Mr. Thiam has relied heavily on a trusted inner circle dominated by current and former management consultants, people close to Credit Suisse say. Several senior executives were uncertain of key details of the CEO's strategic plan until just before it was publicized on Oct. 21, according to the people.

The bank didn't make Mr. Thiam available for comment.

Outsiders like Mr. Thiam -- who is not Swiss and last ran insurer Prudential PLC -- may be well-suited to manage tough overhauls because they aren't tethered to entrenched interests within their institutions. But appeasing thousands of employees through painful changes is a tricky challenge.

The Swiss lender is one of the worst performers among European investment banks, struggling to cut employees and costs, trim businesses and increase capital cushions to satisfy stricter bank regulations. Under Mr. Thiam, the bank managed to tap investors for six billion Swiss francs ($6.18 billion) of capital late last year.

Mr. Thiam has said publicly that the goal in obtaining the much-needed funds was "to stay alive." Bank executives and employees in Switzerland regularly talk about a need to endure the short-term pain of the strategic shift away from investment banking, for Credit Suisse's longer-term health.

Mr. Thiam is a natural target for employees in out-of-favor businesses, such as fixed income. He has opted to ditch much of the bank's distressed-debt business and slash tens of billions of dollars in risk-weighted assets from the trading unit's balance sheet.

When Mr. Thiam disclosed the spate of losses in March, he made what some insiders describe as an unusual call. He opted to describe the hit as totaling close to $1 billion, without qualifying that. Behind the scenes, according to people familiar with internal discussions not previously reported, Mr. Thiam's team had choices: It could opt to mention the benefits of interest and offsetting trades known as hedges that had blunted the losses, as trading-risk managers and executives in New York wanted.

Or it could present solely the gross losses, based on current market conditions, absent the benefit of hedges and other positive factors.

The team chose the latter, in effect maximizing the perceived shortcomings of Credit Suisse's New York-based global markets unit, the people said.

Mr. Thiam and finance chief David Mathers disclosed the higher, gross figure to be consistent with the bank's fourth-quarter presentation of write-downs in the same businesses, according to a person briefed on the matter. The lower, so-called net loss wasn't broken out in either presentation.

A month later, the decision remains divisive. Traders and executives in New York are angry that their new CEO chose not to mention that including hedges and other advantageous trades, the positions in question lost closer to $300 million, according to people familiar with internal calculations that haven't been made public.

David Herro, chief investment officer at Credit Suisse shareholder Harris Associates LP, said despite the recent hiccups, Mr. Thiam is on the right track. "His strategy is correct and he should be given the time to execute it," he said. Others caution that difficulties may persist. Andreas Venditti, a Bank Vontobel AG analyst, noted that UBS Group AG, which had a far smaller investment bank than Credit Suisse before UBS began slashing it in 2012, is still trying to wind down unwanted assets.

New York midlevel and senior managers at Credit Suisse's investment bank complained about rarely seeing Mr. Thiam. People close to the investment bank said that when Mr. Thiam is in New York, he sometimes hosts meetings in his suite at a nearby luxury hotel rather than in the office. A Credit Suisse spokesman said normal practice is to hold business meetings in the bank's offices.

Mr. O'Hara has been busy overseeing the revamped, smaller markets business. Mr. de Boissard was in Greenland this week, skiing. Rifts over the losses, and how they were described in public, remain at multiple levels inside Credit Suisse. Swiss and U.S. regulators have asked for details about the trading issues, risk reporting and related communications, according to people familiar with the matter.

On the trading floor, ill will runs deep. A rumor in February that Wells Fargo & Co. might buy a chunk of Credit Suisse's investment banking business actually boosted morale, said an employee in the global markets unit. The rumor was subsequently denied.

With morale low in New York, some senior bankers and other employees have been weighing a provocative, albeit symbolic step: using their shares to vote against the bank's board at Credit Suisse's annual general meeting on Friday, according to people familiar with the matter.

"I'm aware that I'm not very popular right now," Mr. Thiam said in March at a Zurich conference. "But it's not my job to be popular."

Write to Jenny Strasburg at jenny.strasburg@wsj.com, John Letzing at john.letzing@wsj.com and Max Colchester at max.colchester@wsj.com

(END) Dow Jones Newswires

April 28, 2016 14:50 ET (18:50 GMT)

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