"We want to be more Swiss again"
Switzerland's stability is an ever more important asset in a turbulent world, says the head of the new Credit Suisse (Switzerland) Ltd. Thomas Gottstein on the art of a successful IPO, the best bank in the country and a night watching television.
Mr. Gottstein, we're meeting the morning after Stan Wawrinka beat Novak Djokovic in the US Open. How long did you watch last night?
Truthfully? I put the kids to bed, and I was only planning to watch the first set. But I stayed up for the whole thing, and when I looked up at the clock, it was 2:46 am. A fantastic match. Wawrinka is a perfect example of Swiss values in the world – just like Roger Federer, but in his own unique way. Nevertheless, my alarm went off at six this morning, so please bear with me.
You're familiar with the world of elite sports; you played golf on the Swiss national team. What are the most important character traits for success?
Of course, you need talent. But you can't have long-term success without discipline, even if you are extremely talented. In sports and life in general, it's important to set clear goals.
How did you prepare for an important tournament?
I would go through the course and every single swing in my head the evening before. Over and over. I played many rounds mentally. In every situation, having a clear plan helps to deal with pressure and changing circumstances.
How would you describe yourself as a person?
I'm basically a positive person. I like competition. I enjoy seeing how I measure up to others and winning fair and square. Or – somewhat less enjoyably – losing gracefully. Another life lesson that comes from sports is handling victories and defeats. Both can be difficult.
Clearly, you are exceedingly loyal. You've worked for CS for 17 years.
I've always been lucky to have had good mentors who believed in me – including Marco Illy, Hans-Ulrich Doerig and James Leigh-Pemberton, just to name three. I've also always had colleagues whom I could trust and who trusted me. That inspires loyalty and appreciation, which are very important values to me.
It's often said that when money is involved, loyalty isn't worth much.
What a tired cliché. In the end, people are everything. The members of my management team have worked 20 years for Credit Suisse on average. They know the business, they know what they're talking about, and they have years of experience working as a team.
Credit Suisse (Switzerland) Ltd. has just started operating. There's a buzz of excitement around the new company.
I feel it too. We have founded Credit Suisse (Switzerland) Ltd., and we're planning a partial initial public offering next year. That's brought us together as a team. Plus, with the new Switzerland-based unit we'll have someone on the Executive Board who has only one thing in mind when he gets up in the morning and when he goes to bed at night: Switzerland.
In three sentences, what is your vision for Credit Suisse (Switzerland) Ltd?
I only need one sentence. We want to be the best bank in Switzerland. Period.
How will you achieve that?
We want to offer the best service. We're the only bank that can say we concentrate entirely on Switzerland. The other large banks all still have an offshore business. In addition, we can combine our focus on Switzerland with Credit Suisse Group's global network and full range of services. That's important for our clients – for example, with the takeover of a foreign business by a Swiss company, with a merger that crosses borders, or with alternative investments.
A return to your roots?
Yes, we've renewed our emphasis on Switzerland. In the last five to ten years, we sometimes invested too little in Switzerland – and in innovations, too. We're now changing this. Switzerland is our home market – our heart, so to speak. Switzerland is the most important pillar of the Group's earnings, and a stable one, too.
Victories and defeats – both can be difficult.
You want to position CS even more strongly as a bank for entrepreneurs. Other financial institutions want the same. What will you do differently?
Swiss entrepreneurship is part of our DNA; it's been that way since 1856. Our advantage over most other banks –particularly the purely private banks – is that we've mastered not only the asset management business, but also commercial banking. We can therefore advise entrepreneurs holistically, as private individuals and as corporate clients. We've created special desks in all regions to do precisely this. In the past, we've been governed too strongly by a silo mentality. In a complex world, we have to be simpler and more pragmatic. We want to be more Swiss again.
You know this world through personal experience. Your father was an entrepreneur.
My father owned a company that manufactured coil winding machines, particularly for the electronics industry. I've experienced what it means to be an entrepreneur – creating jobs, struggling with bureaucracy, keeping a level head in good times and bad, taking on risks and investing in innovations.
You've mentioned that Credit Suisse will also be investing more in innovations. That includes digitalization, the hot topic of the banking sector. Precisely because everyone is talking about it, however, it can be hard to see the big picture.
In our view, these are the main points, very briefly stated: Digitalization can't be stopped. It is a tremendous opportunity that brings our clients great advantages. Bank transactions are becoming simpler, there is more transparency, customer experience is better and services are available around the clock.
At the same time, there is more competition; new FinTech firms are springing up everywhere.
We're following the model of "frenemies". Young upstarts are working together with traditional institutions like ourselves. Two other things are important with respect to digitalization. Thanks to modern data analysis – the key concepts here are big data and artificial intelligence – it's easier for us to grasp complex processes quickly, recognize patterns in market developments and present them to our clients. And the automation that accompanies digitalization brings many cost savings.
What does Switzerland mean to you personally – not as a banker, but as a citizen?
Switzerland is my home. I was born and raised here. I'm proud of Switzerland. The country is a model of economic, political and social success. Despite our small size, we've been able to maintain our independence and participate actively within the global community. As a bank, we've oriented ourselves in many ways to this model of success.
What should Switzerland do or not do, to remain successful in the future?
We have to uphold the favorable conditions of a liberal economic order with moderate state intervention. Our primary resource is our highly qualified workforce, some of whom we train ourselves and some of whom we have to attract from abroad. In Switzerland, for example, Credit Suisse has around 17,000 employees, and it offers around 1350 positions for interns and trainees. In implementing the referendum against mass immigration, we need to make sure that we remain attractive for highly skilled workers.
In the era after banking secrecy, how do you see Switzerland's future as a financial center?
Most observers believe that the asset management business in Switzerland will grow between two and three percent each year. I'm convinced that Switzerland will become even more attractive for companies and private clients. Just think about the growing uncertainty in Europe and around the world. Think about our political and social stability, the stability of our currency and our attractive tax policy. Switzerland is attractive and dependable. That's why companies, private banking clients and family offices will continue to come to Switzerland in the future. Unfortunately, in Switzerland we tend to deny ourselves these advantages.
Unfortunately, in Switzerland we're tending to deny ourselves these advantages.
Do you mean bank regulation?
Don't get me wrong – I think that heightening requirements for banking institutions after the financial crisis were absolutely correct; CS actively supported this. But now the issue is for Switzerland not to introduce more stringent regulations before everyone else, and not to change these regulations constantly. There ought to be a few, simple rules that everyone can understand – otherwise, the banks will be less successful in conducting their business, and they will pay fewer taxes and create fewer jobs. That isn't what anyone wants.
We're orienting ourselves to Switzerland's model of success.
As an investment banker, you've participated in dozens of IPOs, some as large as for the natural resource company Glencore, worth more than 10 billion Swiss francs. In general, what are the most important points for a company that wants to go public successfully?
You have to be able to explain your equity story – your argument for issuing new stock – to investors in ten or fifteen minutes. You have to keep things simple, but be able to go into details when asked. You have to be able to convince the investors that a good management team is at the helm. The equity story can be about growth or dividends. Investors usually want a company to be in the top three of its sector. And you need to be transparent and open about opportunities and risks.
You're planning for a partial initial public offering next year with Credit Suisse (Switzerland) Ltd. Unfortunately, we don't have time here for a 15-minute answer. In three minutes, how would you convince us to buy the stock?
You're tougher than all the analysts! So here it is: We are a rock-solid bank, in one of the wealthiest and most stable countries in the world. We're in the top three of all our business lines, we pay a good dividend, we still have room to grow and our management is excellent. Those are the five most important points in two sentences.
Why are you even working towards a partial IPO?
There are essentially three reasons. First, the bank as a whole is currently undervalued. With the IPO, we can demonstrate the value of the Swiss business. We'll compel investors and analysts to evaluate the individual business areas. Second, we can raise more capital for the parent company; we're counting on 2 to 4 billion Swiss francs. Third, we've already talked about the positive buzz. Being able to demonstrate our success as a Swiss team, and seeing this directly in the price of stock, is motivating and bringing us even closer together.
But there is also criticism of the IPO. It's been said that a sheer lack of capital is the reason for going public.
First, the Group is better capitalized today than ever before, having steadily increased its hard-core capital ratio [by 1.8 percentage points between the third quarter of 2015 and the third quarter of 2016, to 12 percent – editor's note]. Second, by reinvesting profits CS Switzerland can generate growth capital that is invested exclusively in Switzerland.
Another speculation is that the international part of the business could be sold or merged more profitably after the IPO.
There isn't a speculation that I haven't already heard. That doesn't mean it's accurate. We'll continue to be a group with international competency. That's important for our Swiss business, too.
With the capital that you raise by going public, you'll have greater financial power. Is taking over Swiss private banks part of CS Switzerland's medium-term strategy?
There are different ways that we might participate in the consolidation of the financial center. Each year, 10 banks disappear in Switzerland. Interesting job profiles come onto the market, and we're an attractive partner. We also expect that certain institutions will become external asset managers, which we can support. And yes, after the initial public offering, acquisitions will be on the table.
Of course, our goal is ambitious, but that's how goals should be.
By 2018, Credit Suisse (Switzerland) Ltd. wants to bring in a pre-tax income of 2.3 billion Swiss francs. Is that realistic?
In 2014, we had a pre-tax income of 1.5 billion Swiss francs. In 2015, it was 1.6 billion. We earned 930 million in the first six months of 2016 – an increase of eight percent. And that happened in a very difficult phase –despite Brexit, despite negative interest, despite high organizational costs for the new Swiss legal entity. We are on the right track.
Some competitors think your growth targets in the home market are much too ambitious.
Of course, our goal is ambitious, but that's how goals should be. The plan is for us to grow by two percent and reduce costs by three percent. My first observation is that we are on the right track. Second, I find it striking that our competitors are commenting on our business plan at all. I would never do this. In my interpretation, they're getting nervous.
Loyalty and appreciation are very important values to me.
One final speculation. Who will merge together first – FCZ and GC (Zurich's top soccer clubs), or CS and UBS?
Both are highly improbable, although the first would make more sense, as long as the new club is called FCZ (laughs). Loyalty and appreciation are very important values to me.