It’s the second August in a row that bankers are waiting for the axe to fall as their higher-ups devise yet another strategic rescue plan. Under the previous one laid out by ex-Chairman Antonio Horta-Osorio in November, the idea was to trim the investment bank without decimating it and to cut costs while avoiding a talent exodus. It didn’t work.

The astronomical first-half loss was the last straw, one senior executive says. Thomas Gottstein, a genial but underpowered CEO with longstanding investment bank ties, is out. Koerner is in. The brusque, unsentimental asset manager is known for being willing to fire people. He was chief operating officer at UBS Group AG in a four-year period when its headcount fell by 16,000.

Lehmann, another UBS stalwart, is the second part of a new leadership double-act that will put restructuring before business building. Speaking to Bloomberg TV recently, Lehmann promised a “major redesign” of Credit Suisse. Investment bankers in Europe and the US are girding themselves for the outcome. Switzerland and Asia may fare better.

The breakneck speed at which Lehmann and Koerner are moving — details of their revamp are expected alongside third-quarter results in October — shows Credit Suisse’s dire situation. It’s still reeling from the huge Archegos and Greensill losses. Ratings company S&P has warned of “increasing risks to the stability of the bank's franchise.”

Koerner has already done his first executive board reshuffle only weeks into the job. He’s reintroduced the job of chief operating officer and put Bank of Ireland CEO Francesca McDonagh, a turnaround specialist hired by Gottstein for a lesser role, into the post. He’s also brought in a new finance chief, Dixit Joshi, an experienced hand from Deutsche Bank AG who helped the German lender survive its own crisis. Michael Bonacker, another ex-UBS executive, has been named head of transformation, a key role in deciding where the axe falls.

Their task is considerable. The core capital ratio, a measure of financial health, is a relatively robust 13.5% but that’s been slipping as losses pile up. “They have four businesses, one of which is absorbing the profits of the other three,” says Herro.

As was the case last August, many staffers are talking of paralysis and despair, and a hemorrhaging of talent. But there’s also increasing alarm about the investment bank’s malaise holding back healthier parts of the company.

While Lehmann says Credit Suisse “still has an excellent client franchise,” other insiders say he’s been desperately trying to meet and reassure some of the bank’s billionaire customers. At least one of its top-10 clients wants to move his money elsewhere. The reputational damage, uncertainty and talent exodus are making it hard to win new work, staffers add, speaking of a barrage of client questions about the firm’s stability.

A few worried customers have shied away from long-dated products. Even in the better-performing Swiss bank, mandates with top corporations have been lost to UBS because of such stigma, a unit employee says.

Bonus Envy
Some wealth managers also resent the lavish rewards on offer to investment bankers, especially given the division’s hazy future. Even though the firm cut its 2021 bonus pool by $1 billion, in the past 19 months it’s handed out $1.3 billion in retention packages and one-time awards to stem defections. “I don’t think these big retention packages for investment bankers are money well spent,” says Kaufmann, who deems it unfair that the Swiss domestic bank’s bonus pool shrank. “Management has to be careful where the cuts apply.”

“The cost cutting has to come from bonuses and salaries and so they won’t be able to pay up any more,” says Arturo Bris, finance professor at IMD Business School in Lausanne. “That’s how a wealth manager fails as it becomes a vicious cycle: It can’t compete on hiring and keeping good talent.”

A big problem facing Lehmann and Koerner is that they’re trying to pull off their salvage job just as market conditions have turned against many of Credit Suisse’s best money-spinners, making its revenue unstable.