Get here everything about Credit Suisse history, crisis, and takeover.
Credit Suisse is a Swiss multinational investment bank and financial services company that offers a range of products and services in wealth management, corporate and institutional banking, asset management, and investment banking. It was founded in 1856 and has its headquarters in Zurich.
Credit Suisse has been involved in several scandals and crises in recent years, such as the spying affair on its former executives, the collapse of Greensill Capital and Archegos Capital Management that caused billions of losses for the bank, and the allegations of money laundering and fraud by its clients.
According to media reports, Credit Suisse is facing a possible takeover by its rival UBS Group AG for up to $1 billion, as it struggles to survive amid mounting financial troubles. The deal would create a banking giant unprecedented in the history of Switzerland, where banking is a core part of the national identity.
In this blog post, we will explore some of the key events, history, and downfall of Credit Suisse.
History of Credit Suisse
The history of Credit Suisse goes back to 1856, when a prominent politician and businessman Alfred Escher founded Schweizerische Kreditanstalt (SKA) in Zurich to fund the development of Switzerland’s rail system. The bank helped create Switzerland’s electrical grid and the European rail system, and played a substantial role in the economic development of Switzerland.
Credit Suisse expanded its operations domestically and internationally over the years, opening branches in Basel, Geneva, London, New York, Tokyo, Hong Kong and other major financial centers. It also acquired or merged with other banks and financial institutions such as White Weld & Co., Bank Leu, Swiss Volksbank, First Boston Corporation, Winterthur Group and Donaldson Lufkin & Jenrette.
Credit Suisse faced several challenges and crises in its history, such as the global financial crisis of 2008-2009, the tax evasion investigations by US authorities that resulted in a guilty plea and a $2.6 billion fine in 2014, and the losses from its involvement with Greensill Capital and Archegos Capital Management in 2020-2021.
In March 2023, Credit Suisse agreed to be acquired by its rival UBS Group AG for up to $1 billion (CHF 3 billion), creating a banking giant unprecedented in the history of Switzerland.
The corporate structure of Credit Suisse
The corporate structure of Credit Suisse is as follows:
Credit Suisse Group AG is a joint-stock company registered in Zurich that operates as a holding company. It owns the Credit Suisse bank and other interests in the financial services business.
Credit Suisse Group AG is organized into four divisions: Wealth Management, Investment Bank, Swiss Bank and Asset Management. Each division has its own products, services, clients and markets.
Credit Suisse Group AG is also organized into four geographic regions: Switzerland, Europe, Middle East and Africa (EMEA), Asia Pacific and Americas. Each region has responsibility for its market presence, client targeting and coverage strategy to drive cross-divisional collaboration and strengthen legal entity management oversight and regulatory relationships at a regionally aligned level.
Credit Suisse Group AG has several major operating subsidiaries such as Credit Suisse (Switzerland) Ltd., Credit Suisse International, Credit Suisse Securities (USA) LLC, Credit Suisse Asset Management Limited and others.
Financial products of Credit Suisse
Credit Suisse offers a variety of financial products to its clients across its four divisions: Wealth Management, Investment Bank, Swiss Bank and Asset Management.
Some examples of financial products offered by Credit Suisse are:
Wealth Management: This division provides comprehensive advice and tailored financial solutions to wealthy individuals, families, and institutions. Some of the products offered by this division include wealth planning, investment advisory, portfolio management, lending solutions, trust and estate services, philanthropy, and sustainable investing.
Investment Bank: This division provides a broad range of financial services to corporations, institutional investors, and sovereign clients. Some of the products offered by this division include mergers and acquisitions advisory, equity and debt capital markets origination and execution, sales and trading of equities, fixed-income securities and derivatives, prime brokerage services, and risk management solutions.
Swiss Bank: This division serves private clients as well as corporate and institutional clients in Switzerland. Some of the products offered by this division include personal banking accounts and cards, mortgages, and loans, savings and investment products, pension solutions, online banking services, and corporate banking solutions.
Asset Management: This division offers a range of investment products across asset classes such as equities, fixed income, real estate, hedge funds, private equity and multi-asset class solutions. Some of the products offered by this division include mutual funds (Credit Suisse Fund), exchange-traded funds (CS ETF), alternative investments (Credit Suisse Alternative Investments), and customized mandates for institutional investors (Credit Suisse Institutional).
Controversies and scandals of Credit Suisse
Credit Suisse has been involved in several controversies and scandals over the years, some of which are:
In 1988, Credit Suisse was accused of laundering money for Ferdinand and Imelda Marcos, the former dictator and first lady of the Philippines who were ousted by a popular uprising in 1986. The bank allegedly helped them transfer millions of dollars worth of assets to Switzerland and other countries.
In 1997, Credit Suisse was fined $100 million by US regulators for violating securities laws by aiding Japanese clients to conceal trading losses. The bank admitted that its Tokyo branch had engaged in a “shredding party” to destroy evidence of illegal transactions.
In 2009, Credit Suisse was sued by Nigeria for allegedly helping former military ruler Sani Abacha and his family loot billions of dollars from the country’s treasury. The bank denied any wrongdoing and said it had cooperated with authorities in recovering stolen funds.
In 2014, Credit Suisse was fined $2.6 billion and pleaded guilty to helping Americans evade taxes for decades in one of the bank’s most explosive scandals to date. The investigation was launched when the former UBS banker Bradley Birkenfeld passed information to US authorities in 2007.
In 2016, Credit Suisse agreed to pay $5.3 billion to settle claims that it misled investors about the quality of its mortgage-backed securities before the 2008 financial crisis. The bank also admitted that one of its former traders, Kareem Serageldin, had falsified prices of subprime bonds to boost his bonus.
In 2020, Credit Suisse faced a criminal trial in Switzerland over allegations that it spied on two former executives who left for rival firms. The bank apologized for hiring private detectives to track Iqbal Khan and Peter Goerke but denied any involvement by senior management.
In 2021, Credit Suisse suffered massive losses from its exposure to two failed clients: Greensill Capital and Archegos Capital Management. The bank had lent billions of dollars to Greensill, a supply-chain finance company that collapsed amid fraud allegations; and Archegos, a family office that imploded after making risky bets on stocks using borrowed money.
The Regulatory Failure
In addition to these scandals, Credit Suisse also failed to comply with some key regulatory requirements that affected its capital adequacy and liquidity position.
In April 2021, the Swiss Financial Market Supervisory Authority (FINMA) announced that it had opened enforcement proceedings against Credit Suisse for breaching supervisory standards related to risk management and governance. FINMA also imposed additional capital requirements on Credit Suisse until it addressed these issues.
In June 2021, the European Central Bank (ECB) revealed that it had found “shortcomings” in Credit Suisse’s internal models for calculating credit risk exposures under Basel III rules. The ECB ordered Credit Suisse to revise its models and increase its capital buffers accordingly.
These regulatory actions put further pressure on Credit Suisse’s balance sheet and profitability. They also highlighted its failure to meet international standards for sound banking practices.
UBS takeover Credit Suisse
UBS takeover Credit Suisse deal is a rescue merger that was announced on March 19th, 2023, after Credit Suisse faced a liquidity crisis due to its exposure to two failed US clients: Greensill Capital and Archegos Capital Management1. The deal was brokered by the Swiss authorities with the support of the Swiss National Bank and the Swiss Financial Market Supervisory Authority2.
Some key points about the deal are:
UBS agreed to buy Credit Suisse for 3 billion Swiss francs ($3.25 billion), which is about 60% less than Credit Suisse’s market value before the deal.
Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they hold, resulting in a significant dilution of their stake.
The deal will not need the approval of shareholders after the Swiss government agreed to change the law so that it can be completed rapidly.
The Swiss National Bank will provide up to 100 billion Swiss francs ($108 billion) in liquidity assistance to support the takeover and ensure financial stability.
The Swiss federal government will provide a loss guarantee of up to 9 billion Swiss francs ($9.7 billion) for a clearly defined part of Credit Suisse’s portfolio that may incur losses due to its exposure to Greensill and Archegos. UBS will assume the first 5 billion francs ($5.4 billion) of losses, followed by the federal government, and then UBS again for any further losses.
The deal will create a banking giant unprecedented in the history of Switzerland, where banking is a core part of the national identity. The combined entity will have assets under management of over $4 trillion and revenues of over $40 billion.
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