Spy, busts, tuna boats
How Credit Suisse developed into a scandalous bank
By Max Borowski
03/15/2023 6:36 p.m
Suddenly, the survival of the 167-year-old Zurich financial institution seems questionable. Clients and investors are running away from Credit Suisse. For years, the once highly respected bank has been the subject of scandal after scandal. A turning point is not in sight.
It was just ten years ago and yet it seems to have been a different era for Credit Suisse: at the beginning of the past decade, the major Swiss bank was named the best private customer bank in the world three times in a row. Compared to many of its competitors, the traditional Zurich company survived the global financial crisis relatively well and was considered the partner par excellence to whom the rich and super-rich entrusted their wealth. After a whole series of scandals, there is not much left of this prestige, the trust of customers and, in some cases, their money.
Credit Suisse posted a record loss for the past year. Customers withdrew more than 100 billion Swiss francs. After the bank had to admit that the control of its financial reports in both 2022 and 2021 showed significant shortcomings and did not meet the requirements of both auditors and regulators, the share price plummeted. When the largest shareholder, the Saudi National Bank, categorically ruled out injecting additional capital, the shares fell again by more than 20 percent at times. Prices for credit default swaps, a form of insurance for the bank’s debt, have soared to extreme levels, indicating that at least some investors expect or are speculating that the bank will default.
How could the former pride of the Swiss financial sector sink so low? An overview of some of the scandals that have rocked Credit Suisse in recent years:
Spygate
Bank boss Tidjane Thiam and the ambitious rising star of wealth management at Credit Suisse, Iqbal Khan, are increasingly at odds. Their neighborhood dispute over the million-dollar villas on Lake Geneva is spectacular and amusing for the public. Among other things, it is about construction site noise and trees that obstruct the view of the lake. At a New Year’s reception in 2019, the dispute escalated openly, and the wives are said to be involved. Eventually, the frustrated Khan left Credit Suisse and joined arch-rival UBS. Concerned that the manager could take trade secrets, customers and, above all, talented employees to the competition, Credit Suisse has Khan followed by private investigators. But they act so unprofessionally that the banker under observation notices his pursuers and confronts them directly. A scuffle ensues, the police are called in and the whole thing is exposed. Bank boss Thiam denies having commissioned the illegal surveillance operation or having known about it. However, the episode, including the subsequent trials, causes deep cracks in the bank’s reputable facade.
cocaine smuggling
As it turned out in the following years, criminal business had been going on behind the scenes for a long time. In 2020, it came to light that Bulgarian drug smugglers had been laundering their money at Credit Suisse for years. Both the bank and a responsible employee were later convicted. The almost complete absence or non-observance of measures against money laundering in the case, which is said to have dragged on at least from 2004 to 2007, caused a stir.
Greensill bankruptcy
The collapse of British financial firm Greensill Capital in 2021 was a scandal in itself. For Credit Suisse, however, the bankruptcy of the supply chain financier turned into a fiasco in its own right. Bank officials had pushed billions of dollars in greensill bonds on their wealthy clients without informing them of the risks involved.
Archego’s collapse
Also in 2021, the implosion of the hedge fund Archegos shocked the financial market worldwide. Fund owner Bill Hwang had speculated extremely risky with a high level of debt and at times built up assets of 36 billion dollars. In the end, however, the house of cards collapsed within a very short time due to price fluctuations on the stock exchange. It turned out that no major bank had supported Hwang in his financial juggling like Credit Suisse. The bank was left with a loss of more than five billion dollars. An independent investigation confirmed a fundamental failure in the risk management and the corresponding control mechanisms of the investment banking division.
Tuna Bonds
Between 2012 and 2016, Credit Suisse collected more than a billion dollars from investors for bonds with which poverty-stricken Mozambique allegedly wanted to build a tuna fishing fleet. However, a significant portion of the money never made it to Mozambique. Around 50 million flowed into the pockets of Credit Suisse employees. The scandal drove Mozambique into a deep financial crisis. Bond investors lost hundreds of millions of dollars. The tuna bonds eventually cost Credit Suisse hundreds of millions of dollars in damages and penalties.
Suisse Secrets
Under the name of Suisse Secrets, the “Süddeutsche Zeitung” last year revealed information from a data leak with information about tens of thousands of Credit Suisse customers, including well-known criminals, dictators and tax evaders. The reports caused outrage around the world.
In addition to home-made scandals, Credit Suisse, like all banks, is struggling with the consequences of the global crises and above all the war in Ukraine. Sanctions against Russian super-rich also affect Credit Suisse customers. The biggest challenge for the bank, however, is regaining the trust of customers. The prerequisite for this would be an end to the series of scandals and thus a consistent change of course at the bank. Despite all the assurances of the management, which has changed several times in recent years, that is not in sight. The admission of flawed financial reports for the past two years is the most recent example.