The Credit Suisse logo on the side of a building, with a clock in the foreground.

Image: Bloomberg Mercury

Credit Suisse had bumper years, particularly during the dotcom boom, and it weathered the 2008 financial crisis reasonably better than UBS. But trouble was never far from the bank’s door. Anita Hawser reports.

The flash sale of Credit Suisse (CS) to UBS may have come as no surprise to many, who, despite the bank’s strong capital levels (common equity Tier 1 capital ratio of 14%), often mentioned the bank in the same breath as the words ‘doomed’ and ‘troubled’.

One only has to look at the bank’s financial performance over the past 12 to 18 months to see that it has had its fair share of financial woes, with 2022 going down as the worst year on record since the 2007-09 global financial crisis in terms of the bank’s profitability. 

Last year saw the bank post a total loss before taxes of $3.5bn, although this was significantly dwarfed by the loss before taxes of $14.01bn that the bank suffered in 2008, according to The Banker Database. However, CS’s long-time rival UBS was harder hit by the subprime crisis and the recession that followed, posting a loss before tax of $19.64bn in 2008. UBS also saw much greater declines in total assets, which fell by more than 30% year on year in 2009, compared to a 9% year-on-year fall for CS.  

In the low-interest-rate and tighter regulatory environment that persisted post-2008, both UBS and CS struggled to restore their pre-tax profitability and total assets to pre-2008 levels, according to The Banker Database. But the past three years have seen UBS race ahead of CS. 

Last year, UBS posted a net profit of $7.6bn (a $9.6bn pre-tax profit) thanks to its “strong positions across Switzerland, Asia-Pacific, Europe, the Middle East and Africa, and the US, and “a balance sheet for all seasons”. But its neighbour on the other side of the Bahnhofstrasse in Zurich, where both banks are headquartered, was grappling with deposit and net asset outflows in the fourth quarter of 2022, and a decrease in net revenues of 34% year on year, driven by falling investment banking and wealth management revenues. CS’s total assets in 2022 fell by more than 30% year on year, according to The Banker Database. 

If 2022 wasn’t bad enough, in 2021 CS was hit with losses relating to the collapse of hedge fund Archegos Capital Management, which resulted in a net charge of $5.2bn, and its Supply Chain Finance Funds, which were hit by the collapse of UK-based Greensill Capital. To top it all off, the bank also posted a goodwill impairment of $1.7bn relating to the acquisition of leveraged finance-specialised investment bank Donaldson, Lufkin & Jenrette (DLJ) back in 2000, and $1.3bn of major litigation provisions to address so-called “legacy issues”.

Keith Thomas, head of securities litigation at UK law firm Stewarts, says CS has suffered what one could describe as a series of unfortunate events, with Greensill, Archegos, the fallout within its risk function and a wholesale clear-out of its senior management.

But ultimately, what sunk it, he says, was depositor confidence. “People simply withdrew their money from the bank even if the bank itself was safe and solvent, and for reasons best known to itself, its primary shareholder said, we’re not prepared to put more money into the bank. Now, all of those are events that undermine confidence.”

While recent events may have sealed the bank’s fate, a deep dive into the archives of tell the story of a bank that suffered more than its fair share of setbacks, missteps and restructurings over the years, which met with mixed success, or took too long to deliver the desired results.

A leading bank during the dotcom boom

In a 2005 article entitled ‘Tower of strength’, Geraldine Lambe wrote that UBS and CS, which were so close to one another on Zurich’s main thoroughfare “that staff can wave to each other through the windows”, had both built strong corporate banks. However, CS’s merger with First Boston “had propelled it into an exclusive group of top tier, global investment banks, to which UBS, particularly before its merger with Swiss Bank Corporation, had not gained entry”.

Credit Suisse First Boston (CSFB), as it was called in the mid-nineties to early 2000s, underwrote some of the major tech initial public offerings (IPOs) of the dotcom era – Amazon, Netscape, Cisco Systems – which netted the bank billions in revenues. According to the Financial Times, Frank Quattrone, the head of CSFB’s tech group at the time, transformed the firm “into a leading banker of the internet boom”.

But the practices of the investment bank’s tech analysts were later called into question by an Securities and Exchange Commission and US Justice Department investigation, which revealed that analysts at leading investment banks were encouraged to write favourable research reports to help them win IPOs from tech issuers. In 2003, their findings saw US banks fork out more than $1bn in fines, with some of the harshest criticism being reserved for banks like CSFB.

However, the bank’s biggest misstep in those heady days of the tech boom was its acquisition of the aforementioned DLJ. CSFB paid $13bn for the firm and at the time, writes Ms Lambe, “it looked like a good enough move … [that] would surely propel CSFB to the top position, creating the global player in investment banking”. But things soon took a turn for the worse, and “synergies turned out to be overlaps”.

Luck was not on CSFB’s side. There was an exodus of staff from DLJ following its acquisition by the Swiss bank, including the likes of Ken Moelis, who was tipped for the top investment banking job. Instead, he decamped to UBS where he went on to transform the bank into a major Wall Street investment powerhouse. “UBS has proved masterful. Credit Suisse has not,” wrote Ms Lambe.

Around the same time, CFSB made some missteps in trying to combine its private banking business with its retail business in a new operating division, Credit Suisse Financial Services. At the time, the bank’s then chairman Oswald Grübel was so incensed by the move that he remarked that “such a ‘high-touch’ business as the private bank could not be grouped into what was essentially the retail bank”.

The move proved “to be a big mistake”, according to The Banker’s coverage, as it “severed the relationship between CSFB and the private banking and wealth management operations”, just at the time high-net-worth clients were looking for complex structured products that were typically investment banks’ specialty. 

Economic and regulatory headwinds

Both banks were hit hard by the 2008 financial crisis, but CS weathered the storm a lot better than UBS. In 2010, The Banker reported that the crisis had seen the bank cement its own turnaround, and drastically boost its equity and investment banking businesses, despite posting a full-year net loss of $8.9bn for 2008. In 2009, CS rebounded with a $7.3bn profit, largely due, the article says, to its best-ever performance in investment banking. 

UBS, on the other hand, was struggling to revive its business and reputation under the stewardship of former CS chief Mr Grübel. With subprime losses totalling a staggering $50bn, Ms Lambe wrote in the March 2010 article that the bank’s once-stellar reputation was “in tatters”, with “an army of risk managers [that] had been looking the wrong way, allowed to do so by a dysfunctional management structure which meant that neither senior managers nor the board saw the danger until too late”.

In the ensuing years, both banks, given their size and systemic importance, came under increasing pressure from Swiss regulators to hold higher levels of capital on their balance sheets than their international counterparts. A period of reflection and restructuring ensued at both banks, with CS looking to “[cut] both risk and leverage, and … tease out which business lines [could] succeed in the new financial and regulatory environment”. 

Increased regulation, hefty fines imposed on private banks in connection with tax regulation and competition from new providers meant wealth managers came under increasing pressure to remain profitable and relevant. The period of 2010–14 proved challenging for both UBS and CS. Both banks saw year-on-year percentage declines in pre-tax profits during that period, but 2015 and 2016 proved particularly tough for CS, which reported pre-tax losses in its investment banking division.

Compared with UBS, which had axed fixed-income trading and cut 10,000 investment banking jobs, CS was still in the midst of restructuring its business and was slower to make a move away from investment banking to focus more on private banking – a move UBS had already made. Seven years on from the global financial crisis, with regulatory pressures mounting and operating costs spiralling, The Banker reported that “many investment banks [were] still lost in the fog, casting around for a viable business model”. CS seemed to be one of them. 

But by 2018, the bank had successfully completed its restructuring, delivering on the strategy it had defined in 2015 to “[create] a leading wealth manager with strong investment banking capabilities”. In the fourth quarter of that year it posted its highest fourth-quarter adjusted income before taxes since 2013 and its ninth consecutive quarter of year-on-year growth. Income before taxes for 2018 increased by almost 90%. “Our performance in 2018 is a testament to the actions we have taken during our restructuring to create a group that should now be more resilient in the face of market turbulence,” CS’s then chairman Urs Rohner and then CEO Tidjane Thiam wrote in the bank’s 2018 annual report. 

The final straw

Then a different kind of turbulence hit the bank head-on. By February 2020, Mr Thiam had resigned as the bank’s CEO due to a scandal relating to the bank’s hiring of private detectives to spy on a former head of wealth management who had left to work for UBS. But the bank’s problems didn’t end there. In March 2021, CS faced the double whammy of Greensill Capital and Archegos’ collapse, causing the bank substantial losses. Then in 2022, various money-laundering allegations surfaced.

A change of leadership and yet another strategy rethink was not enough to convince investors that the bank had a viable plan for the future. With gross deposits falling by more than 40% year on year in 2022, according to The Banker Database, the final straw for the 167-year-old bank appears to have come on March 15, when its largest shareholder stated it would not provide any additional financial support for the bank. CS had finally run out of rope, and so too, it seems, had the regulators. 

“Finma has been monitoring Credit Suisse intensively for several months,” the Swiss financial regulator wrote in its statement announcing the deal with UBS. “During this time, the bank has taken a number of measures to stabilise the situation. These were not enough to restore confidence in the bank, however, and more far-reaching options were also examined. To protect depositors and the financial markets, the offer by UBS to take over Credit Suisse has proven to be the most effective solution.”



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