Credit Suisse (CS, Financial) (Switzerland), a leading global financial services company, was a top detractor for the quarter, following the company’s first-quarter earnings report, which showed soft headline figures and numerous one-time items. The results also reflected massive de-risking as the company continues to reallocate capital from the lower return/higher risk investment bank into its higher return/lower risk wealth management divisions. When coupled with the internal managerial changes, we believe underperformance will continue for the fiscal year 2022, but should provide a path to a cleaner year in 2023. With regards to the management changes, the departures of long-time CFO David Mathers and General Counsel Romeo Cerutti were expected. CEO Thomas Gottstein indicated that Mathers would stay on in the role until a replacement was found and a subsequent general counsel (Markus Diethelm, formerly of UBS) was already secured. Credit Suisse also took CHF 650 million in litigation expenses in the first quarter, but is looking to move past its legacy liabilities. Overall, we find that Credit Suisse possesses a high-quality franchise with a solid balance sheet that positions the company to generate significant free capital as conditions normalize. At its current price, we find that Credit Suisse is trading at a large discount to our perception of its intrinsic value.
From David Herro (Trades, Portfolio)'s Oakmark International Fund second-quarter 2022 commentary.
