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Credit Suisse's CEO says his traders racked up bad positions without telling anyone

Switzerland CEO Tidjane Thiam Chairman Urs Rohner Swiss Bank Cedit Suisse
Switzerland CEO Tidjane Thiam Chairman Urs Rohner Swiss Bank Cedit Suisse

(REUTERS/Arnd Wiegmann)
Credit Suisse CEO Tidjane Thiam.

Credit Suisse CEO Tidjane Thiam says his bank will report a bad first quarter, in part because of poor decisions his traders made without consulting senior leaders.

"This wasn't clear to me — it wasn't clear to my CFO and to many people inside the bank," Thiam said in an interview with Bloomberg TV.

He said that his traders had racked up distressed debt and other illiquid positions and that he was not aware of it until January.

He spoke after the release of a strategy update on plans to accelerate his cost-cutting and restructuring plan.

The strategy update read: "Global Markets performance deteriorated in 2015 with a disappointing 4Q15 and continued pressure in 1Q16. This resulted from outsized positions in activities not in line with the Global Markets strategy."

The firm said it expected first-quarter markets revenues to decline 40% to 45%. It expects write-downs of $258 million for the first quarter because of positions in securitized products, distressed credit, and leveraged finance underwriting.

Credit Suisse also announced that it was cutting an additional 2,000 jobs in the global markets business.

It is pulling out of distressed credit, European securitized products trading, and long-term illiquid financing altogether, and it is cutting in businesses including flow credit, US securitized products trading, and equity derivatives.

Here's the full breakdown on where Credit Suisse is cutting its markets business:

Screen Shot 2016 03 23 at 8.52.50 AM
Screen Shot 2016 03 23 at 8.52.50 AM

(Credit Suisse)

As for the traders' behavior, Thiam said there needed to be a "cultural change" at his bank.

"If your costs are too high and you're not taking them down, you will lead a revenue-driven strategy," Thiam said. "A lot of our problems in the investment bank has been that people are trying to generate revenue at all costs, if I may say so, because you want just cover your fixed cost."

This is not the first time Thiam has criticized the culture within Credit Suisse, which he joined as CEO in July. In January, Thiam criticized the bank's compensation culture, saying it "does not work" because the revenue stream is cyclical and pay should therefore not be fixed.

Thiam said that there had been consequences for certain individuals involved in the trading losses and that he was confident he better understood what was going on and that his firm had good processes in place to try to ensure that it never happen again.

On Tuesday, news broke that Credit Suisse was teaming up with the artificial intelligence firm Palantir to monitor employees and weed out rogue traders.

Credit Suisse is also under fire after a former wealth manager who is now facing up to 10 years in prison allegedly defrauded clients for 6 years.

Here's the Bloomberg TV interview:

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