The Fall of Credit Suisse
End of an era for the iconic Swiss Bank
Credit Suisse Group AG, a once-respected name in the global financial system, has fallen from grace. The crisis-hit bank was bought by UBS Group AG in an unprecedented deal of $3.25 billion brokered by the Swiss National Bank. Credit Suisse came under pressure amid concerns of a full-blown global banking crisis following the collapse of two US banks. While the final chapter of Credit Suisse ended quickly, its fall from grace was the result of years of decay, mistrust, and scandals.
Credit Suisse was once a national icon for Switzerland, representing the country's robust finance industry on the world stage and giving stiff competition to the biggest banks on Wall Street. However, while it gained recognition as one of Europe’s top financial institutions, trouble was brewing in the background, ranging from scandals to legal issues. The Silicon Valley Bank’s collapse triggered an alarm in global markets about the possibility of a looming banking crisis, and a report emerged that Credit Suisse’s biggest backer, Saudi National Bank, would not invest in the lender anymore. This led to a massive decline in Credit Suisse’s shares, and the Swiss central bank had to rush with a $54 billion cheque to plug the cracks and calm investors.
The lifeline failed to soothe investors, and the Swiss authorities had no choice but to push UBS to acquire the failing bank. A complete loss of confidence from the markets and customers proved to be the final nail in the coffin for Credit Suisse. The UBS deal was a huge blow for Credit Suisse, which was among one of the world’s 30 systemically important banks. However, the situation got so bad that it was the only option left to the Swiss authorities to prevent a complete collapse, which would have sent shockwaves across the global stock markets.
Credit Suisse’s reputation started taking a hit over the past few years, but it was once a force to reckon with. It had more than $1 trillion in assets before the global financial crisis hit in 2008 and survived it without any bailout. However, its assets are almost reduced to half that amount, and it finds itself at the end of the road. This development could prove to be a significant blow to Switzerland’s economy, which is largely dependent on the stability of its finance industry.
Over the past few years, Credit Suisse has seen senior management make frequent exits, and those who occupied the positions found themselves facing even more performance pressure. This has proved counterproductive for the bank, evident by a nearly 100 per cent decline in its stock from its peak before the financial crisis in 2008. Several other aggressive expansion plans were set in motion over the next decades, but ultimately did more harm than good to Credit Suisse as its management kept changing.
Credit Suisse suffered another big blow in 2015 when it hired a fraudulent private banker with no clients and no banking experience. Patrice Lescaudron, who died by suicide in 2020 after being convicted in 2018, was exposed in 2015 for stealing from the bank’s wealthy clients. For more than a decade, Lescaudron defrauded some of Credit Suisse’s most sensitive accounts belonging to prime ministers and oligarchs. Leaked regulatory reports later blamed the bank for ignoring brazen compliance violations by one of its own.
The bank's reputation was further tarnished in 2019, when it was revealed that a top-ranking employee had been spied on after he quit. The incident began as a feud between then-CEO Tidjane Thiam and the head of the wealth management division, Iqbal Khan, who desired to lead the bank one day. Their public feud damaged the bank's reputation, but matters escalated when Khan quit and joined UBS, even though he had been passed over for a promotion. This triggered panic among Credit Suisse's top executives, who feared that Khan would poach key personnel from the bank. They even hired a private security firm to monitor his activities.
When the embarrassing incident came to light, the bank dismissed claims of spying and denied any wrongdoing. However, the fallout from the scandal ultimately led to Thiam's departure from the bank in February 2020. An investigation by the Swiss banking regulator in October 2021 found that there were five additional cases of surveillance at the bank from 2016 to 2019, further damaging its already dwindling reputation.
Another significant blow to the bank came in March 2021, when its biggest client, Archegos Capital Management, failed to repay $2 billion. This sparked an internal blame game at Credit Suisse, which made the situation worse as it took nearly two weeks to come up with an initial tally of exposure. The fallout from the Archegos debacle eroded more than a year's profit for the bank, resulting in a massive confidence crisis.
Overall, Credit Suisse's fall from grace was the result of years of decay, mistrust, and scandals. Despite once being a force to be reckoned with in the world of finance, the bank's aggressive expansion plans, risky bets, fraud, and spying ultimately led to its downfall. The end of Credit Suisse also marks a significant blow to Switzerland's economy, which is heavily dependent on the stability of its finance industry.