Axel Lehmann Tiptoes Through Credit Suisse’s Minefield

The Zurich-based bank doesn’t need to physically face its shareholders at its annual investor meeting April 29: for the third time, the event will be held virtually. But Axel Lehmann, chairman of 11 weeks, is already feeling their wrath: Credit Suisse this week gave ground on a normally routine approval vote. The bank will exclude its dealings with Greensill on the so-called discharge of its directors and top executives.

The concession tacitly acknowledges shareholder disgruntlement of the matter. Investors such as Ethos, a Genevan adviser to pension funds and other Swiss institutional shareholders, said earlier this week it doesn’t want to blindly vote on something Credit Suisse refuses to be more transparent about. The entanglement with Lex Greensill’s disgraced supply chain finance boutique is poised to haunt Credit Suisse legally and with regulators for years.

The salvo represents a first setback to Lehmann’s efforts to restore order and make a clean break with its more scandalous past, by prolonging uncertainty for shareholders, who are in the dark over what happened. A 62-year-old academic-turned-insurance executive, Lehmann is Credit Suisse’s third chairman in less than nine months. There is wide agreement that he wouldn’t have won the job if António Horta-Osório had survived an examination of his personal and travel conduct (Lehmann as well as all but one other director – Juan Colombas – voted for Horta-Osório’s ouster).

“Force Of Nature” CEOs

At Credit Suisse, which has seen forces of nature from Oswald Gruebel and John Mack to Paul Calello to Tidjane Thiam and Horta-Osório come and go, Lehmann is a standout for not standing out much at all – except perhaps for an abundance of caution. The Swiss native is lauded as an upstanding team player who has not sought the limelight in a remarkably scandal-free 27-year career in insurance, then more recently banking. His breakout moment was before the 2008/09 financial crisis, when he returned Zurich Insurance’s troubled U.S. business to health. This garnered him the top risk job at the Swiss insurer and put him in the running to replace the CEO.

Not destined to become a CEO, Lehmann joined UBS’ board, then in 2015 its top management when Switzerland’s biggest bank needed a safe pair of hands as operating chief. Lehmann’s calm and deliberate manner is what Credit Suisse – with its back up against the wall – needs right now, his advocates argue. There is no question that he is equipped: he was part of UBS’ post-crisis recovery efforts under then-CEO Sergio Ermotti (a situation with eerie parallels to Credit Suisse now). In just six months on Credit Suisse’s board, Lehmann was part of a board crisis group under Horta-Osório who worked closely with CEO Thomas Gottstein and finance chief David Mathers in the initial flurried response to Greensill and Archegos.

His only weakness appears to be that he is not perceived by the rank-and-file as a banker who has gotten his hands dirty with the business of banking, or as a “P&L leader-type of guy,” as several people familiar with Lehmann’s appointment note. Some lament that the cerebral, reserved Lehmann doesn’t have it in him to become the spontaneous, gut-driven leader who can rally the troops at Credit Suisse and restore confidence through vocal, visible crisis-time leadership.

Greensill Autopsy Under Wraps

His mantra is to ensure CEO Gottstein runs the business without further accidents, writedowns, or legal cases like Greensill or Archegos, and to begin producing a consistency in its careening financial results. Credit Suisse last year released a blistering 165-page report by law firm Paul, Weiss, Rifkind, Wharton & Garrison chronicling how the bank managed to lose more than $5 billion on Archegos. A similar post-mortem on Greensill, by Swiss law firm Walder Wyss and big-four auditor Deloitte, will be kept under wraps. The bank’s reasoning makes sense: why give anything away as it wages court battles with Softbank and Greensill’s insurers?

To make matters worse, most of the Greensill funds were sold to wealthy and institutional private clients of Credit Suisse. The bank has recovered nearly three-quarters of the cash in the Greensill funds. Roughly $2.3 billion from more troublesome obligors – Sanjeev Gupta’s GFG companies, Softbank-backed Katerra, and West Virginian governor Jim Justice’s Bluestone – are still due.

Most imminently, Credit Suisse needs to stabilize a private bank that bled assets at home in the fourth quarter. More than half of top management has been in the job less than one year. There is no question of changing the direction laid out by Horta-Osório – and McKinsey – in November, Lehmann signaled. Strategic questions like mergers or re-entering the U.S. – the world’s largest wealth market – are being pushed far into Credit Suisse’s (hopefully healthy) future.

Hewing Chinese Party Line?

Since taking over from Horta-Osório, Lehmann has signaled a break with the past: three board members including influential deputy Severin Schwan won’t stand again. Three more – Unicredit wealth head Mirko Bianchi, LSE professor Keyu Jin, and outgoing Wells Fargo risk chief Mandy Norton – are joining in coming months. The appointments look like a cookie-cutter approach to connect missing dots on Credit Suisse’s board. Jin’s nomination has garnered controversy because of remarks she made last year which appear to legitimize China’s “re-education” camps for Uighurs, criticized by several human rights groups as crimes against humanity.

Opting out of the Greensill shareholder vote and embarrassment in Zurich over Jin’s hewing so closely to China’s official line are emblematic of the daily barrage facing Lehmann, not to mention “Suisse Secrets” revelations published last month by a reporting consortium that cast a horrid light on Credit Suisse and other Swiss wealth players. “He’s got work to do, and he needs to lay out priorities quickly,” a second adviser said.

It also isn’t clear how well Lehmann knows major shareholders like Qatar’s sovereign wealth fund or David Herro a vocal U.S.-based mutual fund manager with Harris Associates. Lehmann’s bigger problem is taming Credit Suisse’s at times swashbuckling style with risk, likely by centralizing more in Zurich as Horta-Osório had begun to by reversing much of ex-CEO Thiam’s regionalization. The challenge in doing so – in parallel to a risk review under ex-Goldman Sachs risk executive David Wildermuth – is not to overdose on caution and end up choking off business and demoralizing staff.