The rotten core of Credit Suisse

The tale of Credit Suisse ought to be Buddenbrooks on steroids. A staid Swiss lender enters marriage with a racy Wall Street investment bank and gives birth to a monster. Scandal follows scandal. CEOs come and go. In March 2023, the bank ends up being flogged to its arch rival UBS for a miserly $3 billion.

Inside Credit Suisse, the backstabbing and treachery were more suited to a medieval court

Duncan Mavin is well placed to tell this corporate horror story, having written a book about one of Credit Suisse’s most notorious clients, Lex Greensill, an Australian melon farmer turned fintech champion. Greensill Capital, which employed David Cameron as a Whitehall lobbyist and international frontman, turned out to be a house of cards. Meltdown is a repeat demolition job, a pacy account of Credit Suisse’s rise and fall.

At the outset, Mavin observes that the world’s top banks have paid out billions of dollars in fines for misconduct since the global financial crisis in 2008/9. Dodgy clients, money laundering, sanctions busting and trading blow-ups – reputational damage of one sort or the other has plagued the likes of Barclays, Deutsche, HSBC and even J.P. Morgan, widely viewed as best in class. But no one has been a serial offender like Credit Suisse, often dubbed Credit Swizz or Debit Suisse. Why? 

The story begins in 1856, when Alfred Escher, the son of one of the country’s leading dynasties, created Schweizerische Kreditanstalt, a domestic bank set up to lend money to fuel the growth of the railways, the foundation of modern Switzerland. Along with the other private Swiss banks, Credit Suisse took full advantage of banking secrecy to attract funds from wealthy clients in neighbouring France, Germany and Italy eager to escape punitive tax rates.

Things began to go wrong in the late 1980s when Credit Suisse’s gung-ho chairman Rainer Gut formed a joint venture with First Boston, a high-octane Wall Street investment bank. Deregulation was all the rage. After the lifting of Glass-Steagall Depression-era restrictions, banks were allowed to use their own balance sheets to trade securities. This was far more profitable than commercial lending or earning interest on deposits; but it was exponentially more risky, especially when bolted on to a Swiss banking tradition based around secrecy.

After a couple of trading blow-ups, Gut in 1990 took the fateful step of taking a majority stake in First Boston. Mavin captures the ensuing culture clash in terms of architectural style. The Swiss bank was located in Zurich’s Paradeplatz, a picturesque square populated by trams and Jugendstil buildings. The investment bankers sat in London’s Canary Wharf, where they downed rum and Grand Marnier cocktails known as ‘Flaming Ferraris’. Over in Manhattan, they were plonked in a gargantuan Art Deco tower with a vaulted lobby which covered an entire downtown block.

‘Credit Suisse was like two institutions,’ Mavin writes. For the next three decades a procession of CEOs and chairmen, Swiss and imported foreigners, tried in vain to bridge the culture gap. Only the lugubrious German Ossie Grubel came close. A numbers guy who held his subordinates to account, Grubel lasted only three years before shifting to UBS. 

Inside Credit Suisse, the backstabbing and treachery was more suited to a medieval court. By far the best sequence in Meltdown features Tidjane Thiam, drafted in from the Pru to turn round the bank. Within days of taking the top job, the ex-McKinsey man is said to have been shocked to discover ‘a bank racked by scandal, riven with division and ill-equipped for success’. The reader is reminded of Tom Cruise in The Firm, who suddenly realises that the prestigious law practice he has joined is actually run by the Mob.

In fact, the prickly know-it-all from the Ivory Coast was always a high-risk appointment. There is some evidence that he was the victim of racism, both covert and overt. But Thiam did himself no favours. An Arsenal fan when in London, he fell out with super-manager Arsene Wenger over football tactics. In Zurich, Thiam repeated the pattern, parting ways with his one-time favourite and potential successor, Iqbal Khan.

Bizarrely, the trigger was Khan’s decision to move into a neighbouring mansion, order multi-million-dollar renovations and plant trees that allegedly obscured Thiam’s line of vision. When Khan announced he was moving to rival UBS, he became a target in a surveillance operation tied to one of Thiam’s lieutenants. Thiam denied any involvement but the media storm left him no option but to go.

From then on, it was downhill. Mavin documents a number of improbable scandals, including a Bulgarian wrestler involved in money laundering; a hedge fund (Archegos) whose bad trades cost Credit Suisse $5.5 billion; and Greensill himself. And that’s before Wirecard, Germany’s Enron, and a corruption affair in Mozambique involving ‘tuna bonds’.

At times the endless tales of sleaze can become wearing and the death-spiral language a tad hackneyed. But Mavin does deliver the coup de grâce at the end. In the ten years before it collapsed, he notes, Credit Suisse made a cumulative net loss of more than $2 billion. In the same period, it paid out bonuses of about $35 billion.

Mavin spreads the blame liberally around the CEOs and chairmen (and all were men) for this abject state of affairs. Urs Rohner, a dour Swissie who led the bank from 2011 to 2021, must take his fair share for churning through so many CEOs. Time and again, the bank’s leadership promised to clean things up, fix lax risk management and restore accountability. But, Mavin concludes, the culture was rotten to its core. Credit Suisse was unmanageable.

An alternative view is that something is seriously amiss with modern banking and bankers in general. The age of financial capitalism has brought benefits and efficiencies in markets, at the expense of disproportionate risk and undue rewards for a privileged few. Credit Suisse was best in class: a serial offender whose passing deserves even fewer tears.