Credit Suisse and Risk Oversight Pains

Today in news that should surprise nobody: Credit Suisse is mulling whether to remove its chief risk and compliance officer, after months of the Swiss bank stumbling from one surprise scandal to another. 

The executive in question, Lara Warner, has been in that combined risk and compliance role since Credit Suisse consolidated the two functions last July. Prior to that reorg Warner had been chief risk officer since February 2019, and was chief compliance and regulatory officer for four years before that. 

Alas, a lot has happened to Credit Suisse since the reorg. The headlines of the moment are that Credit Suisse lost billions in the collapse of Archegos Capital Management, that family office investment firm that went belly up the other week and left numerous investment banks looking at up to $10 billion in losses. Credit Suisse seems to be one of the worst-hit victims, with estimates as high as $4 billion in losses. 

Still, Archegos is only the mistake of the moment for Credit Suisse. The bank is also reeling from its exposure to the collapse of Greensill Capital, a formerly high-flying player in supply chain finance that failed earlier this year. Credit Suisse provided billions in funding to Greensill, and now Greensill’s bankruptcy administrator is exploring potential fraud at one of Greensill’s largest business partners. 

There’s also Credit Suisse’s exposure to Luckin Coffee, a Chinese firm that settled accounting fraud charges with the SEC last year; and a $450 million impairment Credit Suisse took at the end of 2020 related to another client, hedge fund York Capital Management. 

You get the idea: In the nine months since Credit Suisse integrated its risk and compliance functions last year and put Warner in charge, the bank has gone from one risk management surprise to another; and now the losses are piling up. Credit Suisse is supposed to brief investors sometime this week on its exposure to Archegos, and so the rumor mill has begun speculating that Warner’s fate is in jeopardy. 

Will she be fired? Moved to a diminished role if Credit Suisse reorgs risk oversight again? Survive unscathed? I don’t know any more than what other business press are reporting, but clearly she’s in for a difficult week. 

Speaking of Banks and Risk

The travails at Credit Suisse are so interesting because it’s only one of several large banks trying to find a sustainable model of risk and compliance oversight these days. 

For example, last week Deutsche Bank announced that it’s going separate risk and compliance into two roles — that is, to do the opposite of what Credit Suisse has been trying under Warner. 

In Deutsche Bank’s case, the shift seems largely driven by the looming retirement of its chief risk officer, Stuart Lewis. The bank is giving oversight of regulatory and anti-financial crime compliance to its chief administrative officer, Stefan Simon. Other risk management duties will continue under a successor chief risk officer the bank will appoint later. 

I have my misgivings about any business assigning responsibility for compliance to the chief administrative officer, let alone a global financial firm like Deutsche Bank. A chief administrative officer has so many other duties, and regulatory compliance is such a specific branch of knowledge, that I wonder how a CAO can give compliance the attention it needs. 

Then again, a global bank does need to embed compliance practices into business processes across the whole enterprise; so maybe the chief administrative officer has the right enterprise-wide perspective to do that. I suppose we’ll see. 

Last summer we also saw reorg drama at Wells Fargo. In that instance, CEO Charlie Scharf reversed plans devised by predecessors to blend risk and compliance together more closely. That meant less power for then-chief compliance officer Mike Roemer, who had arrived at Wells Fargo at the start of 2018. So Roemer departed the bank last August, and Scharf proceeded with a new plan for divisional risk officers who all report to a global chief risk officer.  

And don’t forget that painful settlement Citigroup reached with banking regulators in October, which included a laundry list of corrective actions Citigroup and its U.S. operating unit Citibank had to make. The settlement with the Office of the Comptroller of the Currency discussed the importance of roles and responsibilities for compliance and risk oversight at length; and a companion settlement with the Federal Reserve specifically said that Citi’s general counsel shall have responsibility for regulatory compliance. 

If I’m forgetting any other banks going through risk and compliance reorg challenges, drop me a line at [email protected].