Following are excerpts from a CNBC interview with Tidjane Thiam CEO of Credit Suisse, from the World Economic Forum 2017 with Carolin Roth.
CR: This is the CNBC Conversation, I'm very glad we're now joined by the CEO of Credit Suisse, one of the biggest names in the global banking industry, Tidjane, always a pleasure speaking with you.
TT: Good morning, Carolin, thanks for having me.
CR: Thank you so much for taking the time, I really appreciate it. The theme at Davos this year is responsible and responsive leadership. It's kind of a fuzzy subject, but what does it mean to you in the context of the industry that you work in?
TT: I mean-, first of all, good morning again to everybody. It's a very, I think, actually, relevant phrase. For me, responsible leadership means being accountable and responsible, to actually a number of constituencies, I was just in a meeting before this one where we had a long discussion on stakeholders, and the stakeholders for businesses beyond the shareholder. And responsive is actually possibly, for me, the most important part of it, because it's hard to argue that there is not a disconnect between the feelings of a population, and our understandings of those feelings as leaders. And I'll use as evidence of that how unable we've been to predict electoral outcomes. So if the mood out there is a mood to vote for Brexit, if the mood out there is a mood to elect Mr. Trump, how come, let's say the leadership community as a whole, has not seen that? So I think that's tangible evidence that there is a disconnect, and responsive means listening. I think we need to do a better job a listening, and not-, I mean, you know a famous image, not blaming the thermometer if you measure and the body has a fever. I think-, and I've been saying it since I arrived here, but populism is a symptom. It's not a problem. It's a symptom of underlying problems, it's not the cause. People are expressing their dissatisfaction and their frustration with a given state of affairs, and in a democracy they do that through the electoral process. So I think in terms of analysis, and also action plan, we need to focus on the right issues. Globalization, I am totally a supporter of, a believer in. Globalization has been a force for good for the world, but it does have downsides. It's not constructive to deny them, we have to be adult about them, acknowledge them, and then come up with answers to minimize those negative impacts. But there are negative impacts, and I think for a while, the official discourse has tended to deny it.
CR: You've touched on a number of subjects, but I want to come back to that of leadership. Do you find yourself being a good leader, over the last two years at Credit Suisse?
TT: I will never answer that. I think it's a relevant question, but it's an unfair question addressed to me.
CR: Why is it unfair?
TT: No, unfair addressed to me. I'm saying it's a question to address to others, who express an opinion. To do a self-assessment is not really something I think at this point appropriate. What I can talk about is what we have been doing, I think we've set a very clear strategy, we've explained why we believe in this strategy, and we've been, kind of, relentlessly focused on executing it. And a big part of my job is to make sure that we articulate that strategy together, which we've done, and then focus on the execution, and also be responsive, talking about responsive leadership, to the outside world, and you know, when the facts change, change our position, which is what we've been doing, and I think so far the progress has been reasonable. Davos is always difficult, because it's between Q3 and Q4, so you come here generally knowing the kind of outcome of the year, and you have to watch everything you say very carefully, so that you don't give away anything.
CR: Yes, investor relations is probably watching.
TT: Exactly, so let's stick to Q3, which is the last quarter we disclosed. We have a cost reduction programme, and we presented the results and show it's on track. It's ahead of, actually, our plans, it's going well, and it's crucial to the transformation that we are implementing. Strengthening the capital position, we've had our highest CET1 ever, and also growing, we've been able to attract very significant inflows of assets, in difficult markets. SO I think from that perspective, on the big objective we gave ourselves, the teams have worked incredibly hard, and this has been done in a very unforgiving environment. I meet a number of people every year, so I have met in this round a number of people I met in January last year, and it was a very different world then, you know, the oil price collapsing, the spreads going to unprecedented levels. It was a much different climate from this January.
CR: But Tidjane, it's unforgiving for everybody.
TT: Yes, absolutely.
CR: So the industry is tough for everyone. What do you do to stand out?
TT: When you're doing a transformation, that unforgiving environment is a bit more challenging, it's fair to say. To conduct a deep transformation when you have unsupported markets and collapsing revenues, it's just more challenging. But I agree, it's the same environment for everyone.
CR: This week was also very important for you, given that you finalized the deal with the Department of Justice in the US. You settled the sale of toxic mortgages for $5.3 billion. How much of a relief is that for you?
TT: It's very significant. Very significant. Of all the legacy issues we had to deal with-, I mean, you know that this is about activity conducted before 2007. It's mostly 2007, 2006, 2005. So most of us conducting these negotiations were not in the bank even when that happened. So you're dealing with truly a legacy issue, but one that had the potential to destabilize the bank very significantly, and it's been on top of my mind for-, it was one of the trickiest things I did in 2016, I've been asked the question 30 times, 40 times, and I never said anything. Our strategy has been, until it was done-,
CR: I know, I probably asked you five times.
TT: Asked me a number of times, yes, and I've always said I won't say a word, and I think the strategy has worked, frankly. I think we reached a reasonable agreement with the Department of Justice. I mean, of course it's painful for us, it's painful for our shareholders, but you've seen the numbers in our release, we said 2.555 billion, that's net cost to us, I feel that's a good outcome for the bank.
CR: Your rivals, Deutsche Bank, they did a similar deal with the DOJ, and maybe, thankfully, they stole the headlines. You weren't necessarily in the headlines when it came to the DOJ case. But they cut their bonus pool in response to that, and I know that's not a decision that you can take, it has to be decided by the board, but do you feel pressure from your shareholders, from the stakeholders of your bank, to do the same?
CR: Look, on the remuneration, I'll be very concise. I think-, what I have said is that-, I think-, that's my expectation, I can only speak on my own behalf. As you said, the decision is out of my hands, it's a board decision. But I feel that it's-, given what I described earlier in terms of the progress the bank has made on delivering on its objectives, I think it should be a reasonable year, but that's my expectation as CEO. The outcome will be determined by others.
TT: You've talked a little bit about what your bank did in 2016, and when I say it was a challenging year, I think you'll probably agree with me, given the very difficult market environment. You continued with the restructuring of your bank, yet you had to readjust the targets a couple of times, given the difficult market environment. Also, confidence in the European banking sector hit rock bottom in the month of July, and in August. Since then we've recovered quite a bit, but do you believe that 2017 is a year where European banks, including yourself, can shine again, and maybe can even step outside of the shadow of the US peers?
CR: Maybe I can bring some levity to this debate. When I got appointed, I said to my new colleagues that I had a very strong track record, but every time I've changed jobs there was a major crisis the following year. And that actually a lot of my career could be explained by that. I went back to Africa in 1993, there was a 50% devaluation of the West African CFA franc in 1994, three months into my job. The next time I moved, it was in 2002, in 2003, you know, markets went into meltdown. Next time I moved was 2007, so when I arrived at Prudential, I started making bad jokes, I could see the pattern, and in 2008 we all know what happened. Next time I moved was in 2015, so-,
CR: Bad luck follows you, that's what you're saying.
TT: Right, no, I tend to, maybe to move with cycles. When I arrived at Credit Suisse I said, 'Well, watch out-,' the reality is, as I say, never let a good crisis go to waste. In terms of management and leadership, what happens then is-, and you've seen us accelerating our plans. There are a number of things we wanted to do, the disruption creates a sense of urgency and allows you to drive things faster and further, certainly in reducing our RWA, we've gone much faster and further than I thought, at this point in time, and we move very quickly. Now, going back to the targets, the reality is, we live in the real world. Honestly if we'd done the strategy three months later, the targets would have been completely different. We did that work in July, August, September '15, and the world looked completely different. And we came out in October, and then everybody-, everything collapsed. So I also used to make that bad joke, because it became a kind of industry to write that I had destroyed, personally, single handedly, the real share price at Credit Suisse. I was trying to get people to recognize that it was an industry problem, and in the end I started saying that I had single handedly caused the oil crisis, slowed down the Chinese economy-,
CR: And you caused Brexit, too.
TT: Exactly, and probably Brexit, too. So you have to be humble in front of those things, and I have been very consistent since the recovery of the share prices, to say the same thing I said when it was going down. A lot of that is the sector. It's the context, and it is not our actions driving that. Over two, three years, yes, our actions drive the share price. Over a very short period of time, it's mostly the market.
CR: What does 2017 hold in store for you? I know you're very much driven by what the market is doing, and that, in turn, depends on the political scene and the drama that we're seeing in Europe with all these elections going on.
TT: I thought I'd done a really good job not answering, but you're very persistent, so I'm going to try and answer. 2017. No, it's-, look, I think it's better than 2016. I don't like forecasting, I just-, I so deeply believe that the world is random, that management is getting ready for a broad range of outcomes, rather than trying to predict the outcome. Sometimes it's useful to predict the outcome, but the primary rule is to make your organization resilient, so that it can cope with a number of outcomes. You know, you've got the French election, which is a big source of uncertainty, and the problem if you have events with bifurcations, the outcome will be very different, depending on if you go one way or the other. You've got a German election, which will have a big impact. You've got a new administration in the US coming in. I think the positives are the momentum of the US economy, which you can see, and I don't expect that to change in the 12 months. It's a very good momentum there, and I think the US economy is strong and is going to stay strong, which is very good news for the world in general, and I think that's where the markets are pricing today, with behind that hopefully an improvement in the yield curve, which is also good for the sector-,
CR: And a rollback in regulation.
CR: Is that not good news for you? I mean, you do have a sizeable presence in the US.
TT: No, no, no, it's good news. Absolutely, absolutely, it's good news. But you know, it's-, it's a potential upside, it's a potential upside. I think that banks play a very important role in the economy, really, really very important, and I think that it's desirable that governments and regulators create an environment that allow us to do our job, and do it to the benefit of the economy. Did the banking sector need more capital? Yes. I mean, there was too much leverage in the system before, 8 or 9, I think everybody would agree, but since then we've been stress tested a number of times. You know, in December, January, February 15/16, everybody has gone through that, the whole sector, so that's evidence that the efforts to strengthen the sector have borne fruit. So there's a point where-, there's always a point of diminishing returns, and that's the question on the regulatory cycle, have we passed the point of diminishing returns? I think most of us CEOs would think yes, that there is an upside for the economy in rolling that back a little.
CR: So are you saying that, in Europe, because of the heavy-, the excess of regulation, you're not really able to do your job? That means growing the economy, helping your clients through capital market activity, lending, essentially.
TT: I'm saying that there is a lot of discussion here in Davos about globalization, its impacts, etc. Our ability-, Europe is very different from the US, as you know. Capital markets fund two thirds of the capital , in the US. In Europe it's exactly the opposite. So when banks have-, how do you say in English? Sneeze, the economy catches a cold. You know, it's really-, we play a much more crucial role in funding economic activity. So I wouldn't use the word excessive regulation, but in setting regulation, one has to keep an eye to that role that banks play, and make sure that it doesn't-, there is not so many incentives for banks to shrink, that in the end there is not enough growth in the economy, and growth is the number one problem of Europe. If Europe has a debt problem, nobody knows how to solve a debt problem without economic growth. The debt problem, that's the only thing that can actually solve this, is growth. It also has a youth unemployment problem, which then leads to all kinds of political and social issues, so all that requires growth, innovation, and the ability of companies to borrow, and borrow from banks.
CR: Tidjane, we've got to talk about Brexit, and I know you're partly to blame for that, as we all know. We've heard this week from Theresa May-,
TB: You won't let me forget that.
CR: We've heard this week from Theresa May, and what we've heard is that Brexit is Brexit, it is a hard Brexit. Maybe not a hard, hard Brexit, because we may be looking at a transition period, and some of your peers, some of the banks in the world have come out and said, 'We're looking at relocating many of the jobs to continental Europe, maybe even back to New York.' I know you've been pretty guarded when it comes to making any announcements of that sort. When do you think you'll have more visibility? What, exactly, are you waiting for?
TT: Well, look, it's a very important question. Let's go back, maybe, to what we said when we announced our strategy. What we have said on the record is that we will reduce the footprint of London. So that predated Brexit, so that's something I'm relatively comfortable talking about, because it was not related to Brexit. We started with 10,000 jobs in London. We came out of '16 with 8,000, so we've already taken 2,000 jobs, and we said that our medium-term job is 5,000. 5,000, or so. So that's something that we can say, you know, irrespective of Brexit. From Brexit, frankly, we are effectively cautious, because there is a lot… very good that Theresa May expressed herself and gave us some more clarity, but there are still a lot of open questions. One of them is the transition period. Certainly as an industry, and as a bank, we are in favor of a significant transition period, at least two to three years. So we're talking about two plus two to three, so we're talking four to five years. I think that's in the interest of everybody. In the interest of the UK, in the interest of Europe, in the interest of the banking sector. So I hope that we can reach a reasonable-, a reasonable agreement on that.
CR: What about passporting rights of banks into the EU?
TT: Well, I think the government has been very clear, the British government, that that's-, the need to control immigration takes precedence about that, over that. That's one of the things that came out of the speech of the Prime Minister. As I say, we as a bank have dealt with many different types of political and regulatory environments since 1856, so it's our job to operate in whatever environment is determined by the democratic process.
CR: You said before that Trump, Brexit, that's all just a symptom, the populism, of the inequalities that we're facing. I just wonder to what extent businesses can play a better role in closing that gap of inequality.
TT: I think they can play a huge role, and that will maybe allow me to clarify a comment I made that I think has been misquoted and misinterpreted. When I talked about chronic underinvestment in education in the UK, the point I was making was linking that to immigration, which is the number one issue. I have run a large British company for many years. The reason why, as a British employer, you hire, often, immigrants, is because you cannot find native nationals to do that job, because of course, from an economic perspective, you always prefer to hire somebody from that labor market in Liverpool, in Manchester, because they speak the language, have the accent, you're close to the client, close to the customers. So there is really a link there. Look at Switzerland. I think Switzerland is a wonderful example of what happens if you really invest heavily in educating the whole of your population, not just an elite. And these are official numbers. Independent schools in the UK are 9% of the population. What happens to the other 91%? Those are real issues. I think Switzerland gives a wonderful example to the world of leaving no child behind, to use an expression, with apprenticeships and the fact that the system is designed to give a chance to everybody. I actually, personally, don't believe that human beings have a problem with inequality. They don't have a problem with unequal outcomes. They have a problem with unequal opportunity. My experience of people is that generally they accept the outcome of a legitimate and fair process, so if you really go to the root of the unease today in western democracies, it's about opportunity. It's about people feeling that, 'Well, unless you're in the 9%-,' I think the whole of Oxford and Cambridge comes from 200 schools in the UK. There's more than 4,000. So it's that that's at the heart of all this. If there is a fair competition, you know. You know, nobody begrudges the winner of the Premiership League, you know, it's very transparent-,
CR: Well, I would doubt that, actually.
TT: What's your team?
CR: I don't have-, what's your team?
TT: I was-, it's not doing too well.
CR: Arsenal? Chelsea? No?
TT: Arsenal. Arsenal. I've got to-, anyway. My comms team figured there's no conversation that doesn't end up with Arsenal with me, but it's one more data point. So if you go to the Premier League, it's very transparent, it's actually a very open market. If you look at the teams, people come from all over the world. You can be a kid in Abidjan in Africa and say, 'I want to play for Chelsea,' and do it, and you know, nobody begrudges that type of competition. People are dissatisfied with a game where they feel that there's not a level playing field, and they don't have a chance. So I think what policy makers need to focus on, is really creating that equality of opportunity. I genuinely believe that if we can do that, and if we can demonstrate that, people will accept-, they accept that we're not all endowed, you know, you know-, I know that I can never outrun Usain Bolt. That's life, I live with it. I can't win the 100m. But people accept that, that we have different endowments. What they want to see is a fair process.
CR: But the feeling of inequality on the part of many people around the world, that's leading to protectionism, and that's a trend that we're seeing. Protectionism is something that we should worry about when we want to defend the merits of globalization, the merits of free trade. The Chinese President, Xi Jinping was here this week, and ironically, he defended free trade, whereas Donald Trump in the US, the President Elect, soon to be US President, has been looking more towards a protectionist approach. I wonder, when it comes to your business, you're turning back towards being there for Switzerland, you want to be-, you want to go back to your roots. At the same time, you're also heavily investing in expanding in Asia. How does that work for you?
CR: Well, for us it's the same, it's two sides of the same coin, there's absolutely no tension or contradiction there. First of all, we're totally for an open economy and free trade. I mean, since Adam Smith, we all know that it's a win-win. It benefits everybody. If you're a demagogue, it's very easy to try to argue the opposite, but it benefits everybody. But what you cannot deny, as we said earlier, is that free trade has costs. Okay, there are entire regions that are impacted negatively, and it's very important, in the national context, that you take care and you look after those people, because otherwise, it comes back with a vengeance, politically. So that's really the debate. We don't see a tension, we really believe-, we said we want to have a balanced approach, I've said it several times, between developed and emerging markets. We have the good fortune of having significant positions in both-, we have a good exposure to the US economy, which is a great thing to have. We have a good exposure to Switzerland, which is one of the, you know, best performing economies in the world. And then we have big exposures to significant emerging markets. Asia, South East Asia, growingly, China, but also Central Eastern Europe, Middle East, Africa, Brazil where we are number two in our business. Mexico, where we are expanding. So we really think that it's, again, two sides of the same coin. We-, our businesses support each other. When HNA comes to Switzerland, from China, and buys a company, when ChemChina comes and buys Syngenta, our double exposure to China and to Switzerland is a plus, and I really think that the trend of cross-border M&A can only increase, so that's a tailwind for us.
CR: But to reach that potential, do you feel like you've got access to the right talent? Because increasingly, we are seeing competition from the tech giants of this world, Google, Facebook.
TT: That's a great question. They're all great. I mean that in terms of, yes, what really preoccupies me. I think one of the indicators I always follow, if I run a company, is our success rate in attracting talent, and I think actually we've done really well in the last 12 months at Credit Suisse. We've attracted some, you know, pretty good talent, a bit of noise every time, but it's the best compliment that people can pay you. At the end of the day, you judge everything you do-, people vote with their feet, by whether they are willing to-, to join you or not. So are we there yet? No, but it's something we are very focused on, and we do compete very aggressively, on all the campuses, against the tech giants. I mean, I do a big meeting with all the interns every year in July, talk to them globally, we look after them, we-, you know, we do a lot to seduce them, and try to-, first of all, universities to take them in, and then to seduce them and convince them to stay with us, because that's the future. I mean, I'm an old man. They are the future, they will run this company.
CR: You tout all these things about what you do for your employees. Where would you say morale is? Because I don't think it's a secret that morale at your firm was fairly low at some point.
TT: It was, it was low, and you asked me and I think I was quite direct about it, because at that time I had to do what was necessary to ensure survival of the organization, and there are moments when you just have to do what you have to do, but we tried to do that in as humane a way as possible, and I think morale is improving. Every indication I see of that is positive. Just because-, I think we've been lucky enough that there are already some results. Honestly, initially I thought it would take more time to show some business impact of what we are doing, but we've been lucky enough to be able to show in Q2, Q3-, we cut very deep in Q1 and we rebounded very quickly in Q2, Q3, and that contributes to morale. But its' a long journey, it's still very early, and you know, we have a lot of work to do. C
CR: On that note, let me close this panel. Thank you so much for that, I really appreciate it, Tidjane.
TT: Thank you so much.
CR: Always great speaking with you. Thank you.