Credit Suisse - The Worst Bank on Earth?

History of Credit Suisse 00:00

• Founded in 1856 by politician and businessman Alfred Escher.
• Initially funded Switzerland's first Railway system and avoided dependence on the French banking system.
• Major role in its country's Industrial Development, financing infrastructure projects and developing the Swiss currency.
• Expanded operations throughout the latter half of the 19th century, providing banking services to the Swiss middle class and establishing their presence in the United States.
• Instrumental in restructuring Europe's economy after World War II and acquired several other Swiss banks in the process.
• Established their presence all over Europe and became one of the most respected and prestigious financial institutions in the world.

Credit Suisse's reputation decline 00:10

• Credit Suisse has been hit by a series of missteps and compliance failures over the last few years that have damaged its reputation with both clients and investors.
• Credit Suisse was the problematic child of the European Financial system, caught up in virtually every scandal and found itself in multiple bombshell cases in the recent past.
• Credit Suisse has been involved in fraud, money laundering, and hiring spies.
• Credit Suisse was the worst large bank in existence, from shaky financials to a mysterious death of a private investigator.

Credit Suisse's growth culture 02:50

• Rapid growth bred a new culture: risk be damned, it's growth at all costs.
• More customers meant bigger profits and therein lied their focus.
• This created dangerous behaviors and eventually led to Major controversies including the 2006 involvement of hiding Iranian transactions from U.S authorities.

Credit Suisse's involvement in the 2008 crisis 03:18

• Engaged in the mortgage market that sank the rest of the financial world.
• Was able to escape without needing any government help despite steep losses, something that didn't happen to their closest competitor UBS.

Credit Suisse's scandals after the 2008 crisis 03:54

• Credit Suisse's reputation was put into question as more scandals regarding tax evasion emerged.
• Probes into its operation were launched and some former employees were arrested in Brazil, the US, and Germany.
• U.S authorities found that for decades, the firm destroyed bank records and concealed transactions involving undeclared accounts.
• Credit Suisse was found guilty and had to pay a fine of 2.5 billion, the largest bank to plead guilty a criminal charge in more than two decades.

Credit Suisse's Mozambique crisis 04:56

• Credit Suisse caused an economic crisis in Mozambique.
• Credit Suisse along with a Russian Investment Bank, vtb Capital gave two billion dollars worth of backdoor loans to the country.
• Funds were supposed to be for maritime-related projects but ended up being misappropriated, some of the funds ended up in Mozambique military.
• Three former Credit Suisse Bankers were arrested in the US and UK for fraud and money laundering.

Espionage scandal 06:20

• In 2019, the former head of wealth management for Credit Suisse left the company to work for UBS which was located just a few blocks away.
• It then came to light that he was being followed by a private investigator and later on, the police found out that the spy was hired by none other than CEO of Credit Swiss himself.
• The Firm played down the episode and called it an isolated act but Switzerland's Financial Regulators disagreed according to them Credit Swiss planned and carried out most of seven different spying operations between 2016 and 2019.

Spy Scandal and Risky Investments 07:11

• Credit Suisse was involved in a scandal where private investigators were hired to trail Khan.
• The investigator died mysteriously, and no executive was found guilty.
• The CEO of Credit Suisse had hired spies, and the scandal was too large to ignore, resulting in the resignation of the chairman, the head of the bank's security, and later the CEO.
• Credit Suisse was investing in risky firms, including Green Seal Capital and the infamous ARCA Ghost Capital.
• Both companies collapsed, and Credit Suisse was the worst hit.
• The bank lost billions of dollars, and it was stated that the ARCA Ghost-related losses sustained by Credit Swiss were the result of a fundamental failure of management and controls in Credit Suisse's Investment Bank and specifically its prime services division.

Leadership Changes 09:29

• Credit Suisse lost 15 billion dollars in a single quarter, and the bank needed a new leader to sort things out.
• Antonio Horta Osorio was appointed as the new chairman in May 2021.
• He promised to change the culture and bring better risk management, but he was forced to resign less than a year later because he broke quarantine rules.
• He said that Credit Suisse was worse than anything he had experienced running several banks in his 35-year career.

International Entities and Criminal Settlements 10:30

• Dozens of international entities publicly known for their involvement in human rights abuses, drug trafficking, corruption, money laundering, and other serious crimes all had their funds stashed away in Credit Suisse.
• Credit Suisse had to pay half a billion dollars in damages over a fraud case at its Bermuda Insurance arm.
• In June, the Swiss bank was found guilty in a money laundering case involving a cocaine trafficking ring in Bulgaria.
• Credit Suisse's reputation was in complete shambles, and many financial advisors began to recommend that clients take their money out of the firm.

Financial Controls Issue and Annual Losses 12:12

• Credit Suisse delayed its annual report and admitted to material weakness in its financial controls.
• A laundry list of fines and criminal settlements had come back to bite the bank, and they reported an annual loss of more than 7 billion dollars.
• Credit Suisse was already under pressure from its depositors and other funding providers, leading to substantial withdrawals.
• One of its biggest shareholders, the Saudi National Bank, stated publicly that it would not provide the bank with more liquidity, leading to a stock drop of 24% in a day.

Swiss Government's Solution 13:35

• Major financial institutions were cutting ties with the Swiss Giant, and client withdrawals reached 10 billion dollars per day.
• The Swiss government knew that they needed a solution, otherwise, the entire financial system of Europe would be at risk.
• The only viable option was for Credit Suisse's main rival, UBS, to buy out the distressed bank.

Credit Suisse's recent success 14:04

• Credit Suisse had been doing quite well over the past few years.
• In 2022, they had 7.6 billion dollars in profits, and their stock had even risen 24% over the past few years.
• Credit Suisse looked like a great candidate for a deal.

UBS agrees to take over Credit Suisse 14:17

• Global investment firm UBS agreed to take over its competitor, Credit Suisse.
• After much debate, the final form of the deal was drafted, involving a 60 plus discount on the closing price of Credit Swiss and 100 billion dollars in liquidity for the losses of UBS.
• On March 19th, 2022, the deal was made public.

Controversy over the UBS-Credit Suisse deal 14:42

• The controversial deal was able to save the Swiss economy and its beloved banking sector, yet many people are raising questions over the legitimacy of state involvement in the negotiation of the deal.
• According to reports, UBS and Credit Suisse executives did not meet over the weekend to discuss the deal; it was the government and Swiss central bank that orchestrated the move behind the scenes.
• The true problem is how the deal was made - UBS is a public company, and as such, its shareholders have to approve major decisions. It takes six days to have an emergency conference and reach an agreement, but this time, the government made an exception that allowed UBS to override that rule.
• The move was particularly unpopular with the parliament of the country. Under Switzerland's political system, parliament is needed to ratify emergency decisions by the government, something that didn't happen this time around.

UBS's reputation at stake 16:09

• UBS seems to have gotten a bargain by eliminating their competition and solidifying themselves as the biggest bank in Switzerland, but the truth may be different.
• New reports seem to indicate that over half the Swiss population is against the merger of the two banks.
• Cultures within the two firms are completely distinct, so a split should not be off the table for UBS.
• The US Department of Justice is already looking into former Credit Suisse's involvement in helping Russian oligarchs evade sanctions, and UBS is likely going to find a lot of skeletons in Credit Swiss's closet.
• The Swiss banking system may lose what's left of its reputation.

Confidence in the banking system has worsened 16:45

• Confidence in the banking system has only gotten worse, and Europeans are looking out for the next weak spot.
• Even if a bank has all the required ratios in place, it can easily go down if enough withdrawals are made at once.
• So far, it seems like the next in line is Deutsche Bank.