Credit Suisse, one of the world’s largest and most prestigious banks, has been in the headlines for all the wrong reasons lately. The Swiss bank has been rocked by a series of scandals and losses that have tarnished its reputation and eroded its capital base. How did Credit Suisse go from being a leading global financial institution to a troubled and struggling one?

Early history of Credit Suisse

Alfred Escher, a prominent Swiss politician and entrepreneur, founded Schweizerische Kreditanstalt in Zurich in 1856, together with Allgemeine Deutsche Credit-Anstalt, to fund the development of Switzerland’s rail system. At the time, Switzerland did not have a large financial institution and required foreign banks’ involvement to conduct any domestic infrastructure development projects. Alfred’s idea was to remove the possibility of external lenders influencing the Swiss rail industry. At the initial stage of the bank’s history, it provided financing to Alfred’s own rail company, the Swiss Northeastern Railway. However, it soon expanded into other sectors, such as electricity, industry, and trade. Following the 1870 Franco-Prussian War, Credit Suisse became the largest Swiss financial institution. In the early 20th century, Credit Suisse further diversified into retail and private banking.

In the 1970s and 1980s, Credit Suisse further diversified its business into investment banking. To enter the investment banking business, it acquired First Boston Corporation, initiating its first investment in 1978 by acquiring 44% of the business. It followed up by injecting $725 million in 1988 in First Boston, which lost $450+ million from the failure of one of its large clients.

Over the 1990s and 2000s, Credit Suisse became one of the world’s leading financial conglomerates, with operations in over 50 countries and assets of over $1 trillion.

Throughout its history, Credit Suisse survived the Asian financial crisis of 1997-1998 and the dot-com bubble of 2000-2001. However, it suffered heavy losses during the global financial crisis of 2007-2009. It received a $5.3 billion bailout from the Swiss government in 2008 with a total loss guarantee of CHF 10 billion. This happened just two years after paying a $536 million settlement for acknowledged misconduct for helping Iran and other countries hide transactions from US authorities, which was the first step in this history rich corporation’s downfall.

Recent history

Credit Suisse faced a series of legal and regulatory troubles in the 2010s, including allegations of tax evasion, money laundering, market manipulation, and fraud. It paid billions of dollars in fines and settlements to various authorities around the world. It also underwent several restructuring and cost-cutting measures, including selling off parts of its business and reducing its workforce.

In March 2014, Credit Suisse set a new anti-record by pleading guilty to conspiring to aid tax evasion, becoming the largest bank to plead guilty since Bankers Trust in 1999. The $2.6 billion penalty further impacted the financial standing of the firm.

In addition to breaking regulations, Credit Suisse was also involved in a spying scandal in 2019. The scandal involved an outgoing wealth management executive, Iqbal Khan, who was allegedly followed by private detectives hired by the bank. The scandal led to the resignation of then-CEO Tidjane Thiam in February 2020, just before the start of the Covid pandemic.

Post-Covid challenges

In 2021, Credit Suisse suffered massive losses due to its exposure to two failed clients: Archegos Capital Management, a US hedge fund that defaulted on margin calls in March; and Greensill Capital, a UK-based supply chain finance firm that collapsed in April. The bank reported a net loss of $275 million for the first quarter of 2021 and warned of further losses in the second quarter. It also announced another management shake-up and launched an internal investigation into the incidents.

In 2022, Credit Suisse faced more legal and regulatory challenges, including lawsuits from investors who lost money in its funds linked to Greensill Capital; investigations by Swiss, US, UK, and Japanese authorities into its role in the Archegos debacle; and allegations of bribery and corruption in Mozambique and Malaysia. The bank’s share price fell to its lowest level since 1992.

UBS Acquisition

At the start of the year, Credit Suisse faced significant withdrawals from customers, with more than 61 billion Swiss francs worth of assets being pulled from the bank. The Swiss lender attributed its poor financial performance in the first quarter to these withdrawals, with its adjusted pre-tax loss ballooning to 1.3 billion Swiss francs for the first three months of the year following all of the scandals of 2022. The pressure on the bank has been exacerbated by Saudi National Bank, one of its largest investors, ruling out any extra funding for the Swiss lender despite the growing turmoil.

Credit Suisse’s first quarter 2023 figures were the last set of standalone financial results, after which the 167-year-old bank was subsumed by its largest Swiss competitor, UBS, in the coming months. The acquisition was arranged and approved by Switzerland’s Financial Market Supervisory Authority (FINMA). The deal caused an uproar among bondholders as $17 billion of Credit Suisse AT1 bonds were written off as part of the rescue all equity deal brokered by Swiss authorities in March. AT1 bonds are considered a relatively risky form of junior debt and are often owned by institutional investors.

Even following the acquisition, Credit Suisse had a number of follow-up lawsuits and fines to settle. On June 15, 2023, Credit Suisse was fined $1.5 billion by the US Department of Justice for its role in the 1MDB scandal. On top of that, on July 12, 2023, Credit Suisse announced that it would pay $400 million to settle a lawsuit brought by investors over its handling of Greensill Capital funds.

Please note, none of the information on this blog represents the opinion of my employer and all information does not represent a financial advice.