Where did it all go wrong for Credit Suisse?

Widespread analysis of what went wrong at Credit Suisse converges on a constant theme: an international bank that lost touch with its Swiss roots, led by people who put profits ahead of prudence.

This has resulted in massive financial losses and a restructuring drive that will see 9,000 staff lose their jobs.

What happened?

Credit Suisse has lurched from one scandal to another: spying on a former employee, a criminal conviction for allowing drug dealers to launder money, entanglement in a Mozambique corruption case, a chairman violating Covid lockdown rules and a massive leak of client data to the media.

+ The financial consequences for Credit Suisse in 2022

The bank’s credibility was further hit by soured investments in British financial firm Greensill Capital and US fund Archegos Capital Management, both of which collapsed in 2021.

The $10 billion (CHF9.2 billion) of client funds invested in Greensill are unlikely to be recovered in full. And while it was not the only bank to be burnt by Archegos, Credit Suisse took far greater losses ($5.5 billion) than its rivals.

The Swiss financial regulator slammed the bank for wilfully ignoring more than 100 red flags as it was lured off the edge of a cliff in pursuit of phantom profits.

How did this happen?

Using hindsight to identify a self-destructive risk culture is the easy part. But it’s harder to explain how this was allowed to happen, particularly when so many analysts insist that the risks were obvious to spot.

In such circumstances, the finger of blame points to the bank’s leadership.

Former Credit Suisse CEO Oswald Grübel says the rot started when he was replaced in 2007 by the American head of investment banking, Brady Dougan.

But while Dougan’s successors preached greater risk responsibility after his departure in 2015, this appears not to have been put into practice.

Senior risk and compliance heads, hired well after Dougan left the bank, are among the ranks of management to have been given the boot amid the latest financial wreckage.

Other commentators blame Urs Rohner, who chaired the bank between 2011 and 2021.

The consequences

The bottom line is mounting financial losses, a plunging share price (CHF84 in 2007, CHF3 today), an exodus of wealthy clients and the bank’s credibility being rapidly eroded.

The bank is so integral to the Swiss economy that it is deemed “too big to fail” by the financial regulator.

But Credit Suisse also has another important, less tangible value. The bank was founded in 1856 by the iconic industrialist Alfred Escher to help fund Switzerland’s rail system, a crucial plank in the country’s industrial renaissance.

This might explain why so many people in Switzerland blame the bank’s current woes on Anglo-Saxon financial excesses weakening its Swiss roots.