On Friday, March 17, 2023 Credit Suisse (CS) was valued at 7.4 billion Swiss francs. Over the weekend, with the encouragement and help of the Swiss government, the Swiss National Bank and the Swiss Financial Market Supervisory Authority (FINMA), passing over private property rights, it was decided that the largest Swiss bank, UBS, can buy the number two, Credit Suisse for only 3 billion Swiss francs. A bargain, last, but not least, because the Swiss government is liable for up to 9 billion Swiss Francs in old CS risks hidden in the books, and the Swiss National Bank offers CHF 200 billion in liquidity for the newly emerging banking giant. This creates an unhealthy, quasi-monopoly player with unprecedented market power in the Swiss banking system. It’s a cluster risk (Klumpenrisiko) that will be difficult to undo.
Already, until now, the two biggest players were seperately by far too big to fail. I remember complaining when, in 1998, Bankgesellschaft and Bankverein fusioned to form UBS, reducing the oligopoly of three major players to a duopoly with lesser competition which, from a cartel and competition law position, looked shady already back then.
Following a short civil war, modern Switzerland aka the Swiss Confederation was founded in 1848. Originally, from 1848 until 1891 (!), the Swiss government aka Federal Council (Bundesrat) was entirely composed by members of the economically and socially liberal Radical Party (presently the Free Democratic Party, FDP).
In 1856, the controversial, but extremely dynamic businessman, railway pioneer and radical-liberal politician Alfred Escher founded the Schweizerische Kreditanstalt, today’s Credit Suisse, mainly to provide domestic funding to private Swiss railway projects.
Back to the present: Credit Suisse has been in a sorry state for quite some time, mainly due to decades of scandals regarding shadow money, tax evasion, fraud and other criminal activities by the bank itself and by fraudsters and other criminals for whom the bank covered up.
Among the many notable scandals Credit Suisse was/is involved in let’s just mention the estimated $5 to $10 billion stolen by the former Philippine dictator Ferdinand Marcos and his wife, Imelda, who had fake Credit Suisse accounts under the names “William Saunders” and “Jane Ryan”. In 1995, a Zurich court ordered Credit Suisse and other banks, to return $500 million of stolen funds to the Philippines.
There were the estimated $1 to $5 billion stolen by the Nigerian dictator Sani Abacha in the 1990s. As late as in December 2017, the Swiss Federal Department of Foreign Affairs announced that Credit Suisse had to return to Nigeria some $320 million of money stolen by Sani Abacha and his sons.
In 2009, Credit Suisse was fined by the United States because of breaches of U.S. sanction against Iran, Sudan and other countries between 1995 and 2007. CS was finde $536 million.
In 2011, Credit Suisse agreed to pay €150 million to avoid a ‘complex and prolonged legal dispute’ over tax evasion in Germany.
In 2012, Credit Suisse was involved in the U.S. sub-prime bond fraud. In 2014, the bank was fined $2.6 billion for helping U.S. citizens to evade taxes overs several decades. In 2016, CS paid a money-laundering fine in the United States.
In 2016, Credit Suisse agreed to pay €109.5 million to Italian authorities in a settlement over tax evasion through the CS subsidiaries in Liechtenstein and Bermuda.
In 2017, Credit Suisse was involved in the Malaysian 1MDB investment fund scandal and fined for breaching money-laundering rules.
In 2017, Credit Suisse was accused of European tax evasion through Austrian, German and UK offices. According to press reports, the case involved some 55,000 CS accounts.
In 2018, Switzerland’s financial regulator FINMA sanctioned Credit Suisse for violating money-laundering rules in the cases of the football association Fifa, the Brazilian oil company Petrobras and the Venezuelian state oil company PDVSA.
In 2018, the former Credit Suisse banker Patrice Lescaudron was sentenced to five years in prison for forging client signatures to divert money to risky strock market bets wich resulted on over $150 million in losses.
In 2019 and 2020, Credit Suisse made headlines because its new chief executive Tidjane Thiam and other executives were involved in a corporate spying scandal.
One can add the 2020 scandal surrounding the Bulgarian drug trafficking gang, which laundered over $140 million through Credit Suisse, the 2021 Archegos Capital Management hedge fund collapse, which resulted in some $5.5 billion of losses, the 2021 collapse of the $10 billion supply chain finance fund Greensill Capital which, according to a 2022 Reuters report cost Credit Suissse some $1.6 billion.
This list is surely not complete and could also include the Cum-Ex scandal, or the London Interbank Offered Rate aka Libor antitrust litigation over an interest rate manipulation. However, one thing is clear: once a bank loses the confidence of their clients, its almost impossible to survive.
Far too long, the Swiss government, FINMA and others have watched Credit Suisse bankers do all kinds of shady deals, without serious consequences, without substantial changes in corporate governance, without the establishment of a serious risk management.
The “solution” found by the Swiss government, FINMA and the Swiss Central Bank does not look good. They are bypassing the property rights of stock holders, violating cartel and competition laws (bypassing the competition regulator Weko), and involving once again taxpayers’ money, as in the cases of the 2000 Swissair airline bankruptcy and the 2008 UBS near-death in the suprime-crisis. The result is an unprecedented cluster risk. If UBS goes down, the Swiss economy will go down. Full stop.
167 years after its foundation by Alfred Escher, greedy and shady “Schwarzgeld-Bunkerer” and “Finanzverbrater” managed to sink Credit Suisse.
This photograph shows the Zurich headquarters of Credit Suisse at the famous Paradeplatz where, across the street, UBS has its hq. Photo by “Roland zh” via Wikimedia Commons. This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
Article added on March 20, 2023 at 17:14 Swiss time. Last update at 22:32.
