Morningstar - Q4 2023 - 64

Investors
reforming the investment bank-and urged
the board of directors to retain him. He advised the
directors to oust the board chair, Urs Rohner,
instead. Herro argued that Rohner, who'd held
leadership roles at Credit Suisse for much
longer than Thiam had been CEO, bore more blame
for the bank's many missteps. But the board
went ahead and forced out Thiam.
Herro angrily denounced the decision. Yet
he continued to believe in Credit Suisse's future.
Herro now concedes he should've seized
this opportunity to walk away. The CEO who
had implemented changes that Herro had
long wished for-and which were bearing fruit
in the bank's financial results-had left
the scene. Remaining in charge were the chair
in whom he had no confidence and the
board that had explicitly rejected his advice.
Why stick around?
15
02/07/2020 CEO Tidjane Thiam
Resigns After Spying Scandal
12
Herro says a main reason was that Rohner
said he'd be leaving in a year, and Herro figured
that the new CEO, not Rohner, would make
the key decisions in that period. Yet even if those
expectations justified hanging on for a while
after Thiam's departure, Herro could have changed
his mind at any time thereafter. Indeed,
3
6
9
01/2020
EXHIBIT 2
Plunging Stock Price Credit Suisse's last two decades were a bumpy ride
to the bottom.
Monthly Share Price (CHF)
100
80
20
40
60
01/31/2002
Source: Morningstar Direct. Data as of May 31, 2023.
01/31/2009
01/31/2016
05/31/2023
0.75
08/2020
03/29/2021
the events of the following year offered further
incentive to sell.
Constantly in the Headlines-
and Not in a Good Way
In early 2021, two more scandals rocked Credit
Suisse. First, Greensill Capital, a U.K. financial
firm involved in complex lending operations,
collapsed. It emerged that Credit Suisse had been
deeply involved with the firm and its CEO.
Swiss regulators later concluded that Credit Suisse
had " seriously breached its supervisory
obligations " in the affair.
$5.5 Billion Loss From
Archegos Default
A few weeks later, Credit Suisse became
entangled in the demise of U.S.-based hedge fund
Archegos Capital. A review by an outside law
firm placed the blame on " a fundamental failure
of management and controls " in Credit Suisse's
investment bank and added that its focus on
maximizing short-term profits " enabled Archegos's
voracious risk taking. " But Herro was unfazed,
touting the firm's potential in a late March
2021 interview with Bloomberg TV. The damage
can be repaired, he said, voicing confidence in
the incoming chair to spruce things up.
03/01/2021 Greensill Scandal
10/19/2021 Fined After
Mozambique Scandal
03/23/2022 Charged in Bermuda Trial
But that chair-António Horta-Osório-lasted
less than nine months, pressured to resign owing
03/2021
10/2021
in part to his breaking COVID-19 protocols.
Other executives had already been sent packing
after the Archegos and Greensill debacles,
including Credit Suisse's chief of risk and
compliance; the head of the investment bank;
that unit's head of credit risk; and a number
of others.
Despite the turmoil, as late as the second
and third quarters of 2022, Herro was
still buying shares of Credit Suisse for Oakmark
International, even as he trimmed many
other holdings. In Oakmark International's Sept.
30, 2022, annual report, he wrote that investors
were " over-penalizing Credit Suisse for
past errors " and offered detailed reasoning
why he expected it to bounce back.
01/17/2022 Chairman Forced to Resign
02/20/2022 Suisse Secrets Leak
07/26/2022 Ulrich
Körner Appointed CEO
10/03/2022 Körner: Capital and Liquidity Solid
05/2022
The Final Straw
A few weeks later, though, Herro finally gave up.
He says the final straw was a complicated
restructuring plan that included a proposal to spin
off the investment bank. One might think that
idea would appeal to Herro, but he told the
Financial Times that the structure of the plan was
" cumbersome and far more costly in terms of
cash burn than we expected. " Later, he wrote that
the spinoff plan provided " no insight into the
proceeds from the asset sales as well as the costs
of restructuring the investment bank. "
06/27/2022 Found Guilty
in Money Laundering Case
03/08/2023 Annual
Report Delayed
03/16/2023
Swiss National
Bank Provides
Lifeline
03/19/2023
UBS Takes Over
0.75
12/2022 05/31/2023
Moreover, he had lost faith in Credit Suisse's
wealth-management business, long the bulwark
of his investment thesis. " There have been
large outflows from wealth management, " he told
the Financial Times, calling into question " the
future of the franchise. "
Herro recently told Morningstar that some
facets of the restructuring plan seemed unwise,
and the sheer complexity and opacity of the
proposal made it impossible for him to accurately
value Credit Suisse. A value investor who
can't ascertain a firm's value can't determine
whether to own it.
Therefore, in 2022's fourth quarter, he sold
nearly one third of Oakmark International's Credit
Suisse shares. In the new year, he gradually
dumped the rest, completing the task around
March 1. A few weeks later, Credit Suisse
64
Morningstar Q4 2023
15%
Oakmark International Investor
Morningstar - Q4 2023

Table of Contents for the Digital Edition of Morningstar - Q4 2023
