Credit Suisse Group named Brady Dougan, who made investment banking the most profitable division, to succeed Oswald Gruebel as chief executive officer after the company’s earnings rose to a record.
Dougan, a 47-year-old American, will become the first former derivatives trader to lead one of the world’s biggest financial companies. He’ll take over in May from Gruebel, 63, who revived profits during five years as CEO of the Zurich-based bank.
Credit Suisse’s earnings quadrupled in the fourth quarter to 4.67 billion francs ($3.8 billion) because of asset sales and a surge in trading revenue at Dougan’s unit. The bank’s profitability and stock performance are catching up with UBS AG and Goldman Sachs Group Inc. after lagging behind for most of this decade.
“Brady Dougan was clearly the best candidate they could have found within the bank,” said Florian Esterer, a fund manager at Swisscanto Asset Management, which oversees the equivalent of $49 billion and holds Credit Suisse shares. “He’s not quite as strong a character as Gruebel but he’s certainly capable of shaking things up.”
Paul Calello, 46, head of the Asia Pacific region, will take over from Dougan running the investment bank. Robert Shafir, 48, the former head of equities at Lehman Brothers Holdings Inc., will join as chief executive of the Americas.
Credit Suisse shares rose 2.9 francs, or 3.3 percent, to 91.60 francs. Since the end of the third quarter, Credit Suisse stock has gained 27 percent, beating the 3 percent advance in UBS. That’s a reversal from the past five years, during which Credit Suisse stock returned 65 percent, including reinvested dividends, less than half UBS’s 134 percent.
Reversal of Strategy
The increase in fourth-quarter earnings included 1.8 billion francs from Gruebel’s sale of the Winterthur insurance unit to Axa SA last year. Gruebel reversed an expansion into insurance by his predecessor, Lukas Muehlemann, which contributed to a record loss at the bank in 2002.
Credit Suisse last year pledged to use the money from the Winterthur sale for a record stock buyback, money-management acquisitions and investment in areas such as leveraged finance.
“I’m retiring because my work here is done,” Gruebel said on a conference call today. He first joined Credit Suisse in 1970 and temporarily retired in 2002, before returning later that year. “I came back in 2002 when we had a job to return the company to profitability.”
Dougan, Mack, Wheat
Dougan rose through the ranks during 17 years at the company, and took over the investment bank when John Mack left as co-CEO of Credit Suisse in 2004.
Dougan joined Credit Suisse in 1990 from Bankers Trust, when he helped set up a derivatives unit under the leadership of Allen Wheat. Three years later, he became co-head of bond underwriting and origination and helped make the firm No. 2 in underwriting U.S. debt in 1994, up from fifth in 1992, according to figures from the firm.
Wheat put Dougan in charge of the firm’s flagging equities unit, which at that point was barely breaking even. Dougan met his target of generating pretax profit of $1 billion before bonuses by 2000. The same year, Wheat promoted Dougan again, putting him in charge of investment banking as well as equities alongside Charles Ward, 52.
As head of the investment bank, Dougan battled to cut costs which outstripped rivals including Goldman and Lehman. Last year, he ordered bankers to cut back on offsite meetings, staff parties and color photocopying. He also increased trading with the bank’s own money, or proprietary trading, to boost profit.
Since Dougan took over in 2004, investment-banking profit almost tripled from 2 billion francs to 5.95 billion francs, before charges.
“What Dougan’s shown this year is that he has turned around the investment bank, which had serious problems,” said Patrick Lemmens, who helps manage $3.5 billion, including Credit Suisse stock, at ABN Amro Asset Management in Amsterdam. “It was losing market share left and right.”
In the fourth quarter, pretax earnings at the investment bank surged to a record 2.34 billion francs from 286 million francs a year earlier, helped by “strong contributions across the underwriting, advisory, fixed income trading and equity trading business,” Credit Suisse said today. Analysts forecast profit of 902 million francs.
“Businesses in which Credit Suisse holds a strong position, including leveraged finance, were very positive in the fourth quarter,” Andreas Venditti, a Zurich-based analyst at Zuercher Kantonalbank, said in a note before today’s report.
Plans to Invest
The securities unit, formerly known as Credit Suisse First Boston, won fees in the fourth quarter from Industrial & Commercial Bank of China Ltd’s $22 billion initial public offering, the world’s largest ever.
The company last month said it plans to invest 4 billion francs to expand in areas such as commercial mortgage-backed securities, leveraged finance and alternative investments.
Gruebel said on 12 January that he was confident about 2007 and “very optimistic” for investment banking.
At the main wealth management unit, profit gained 15 percent to 811 million francs in the fourth quarter, while earnings at the Swiss consumer bank gained 3.1 percent to 332 million francs. Credit Suisse’s asset management unit said profit slumped to 89 million francs from 241 million francs.
Credit Suisse, the world’s fourth-largest manager of money for those with at least $1 million to invest, also set aside 3.5 billion francs from the sale of its Winterthur insurance unit for potential money-management takeovers in the U.S., the Middle East and Asia, where economic growth outpaces Europe.
The bank last year opened wealth management offices in Sydney, Moscow, Beirut and Doha, and in December agreed to buy a majority stake in Brazilian asset manager Hedging-Griffo for 358 million francs. Credit Suisse will also “explore opportunities in Belgium, Central and Eastern Europe, Turkey and India,” the bank said in a statement on 22 January.