Credit Suisse: what next for the crisis-hit bank? | FT Film

this is a story of finance gone wrong the credit suisse story is a story of one of switzerland's most important institutions one of the most important banking institutions in europe the bank which ignored risks ignored red flags we are in a very challenging situation we need to address that there is a cultural issue at the bank good financial result at any price it's a tale of scandal after scandal but at certain points during this has gotten quite hard to believe you have bulgarian drug smugglers oligarchs general chaos at one of the world's top wealth managers and investment banks a bank that used to be a national pride now trying to recover from that smp global downgraded great swiss cg you have taken very decisive steps credit suisse let its commercial team override its risk team and what we're seeing now is historic scandals but also some more recent scandals it's just created the basket case bank of europe let's roll back the clock to 1856 alfred escher the 19th century industrialist he's looking to modernize switzerland he sets up his own bank we know today as credit suisse what a lot of people maybe outside of switzerland don't quite understand is just how integral credit suisse is to the the history of switzerland i'm acceleman chairman criticized group since january this year banking is really part of the fabric of switzerland and criticism was very instrumental to the economic success of switzerland it's a big honor to be asked to share such a great organization with that legacy i mean credit suisse is fundamentally at its core a private bank it's a bank that caters to very rich individuals so the central cog is the wealth management business and this really is the driving engine for the bank it provides financial services it provides advice and it helps protect the the wealth of the world's richest people connected to that cog are the asset management business which invests a lot of those funds the investment bank which is tied not only will they manage their wealth but they'll help them run their businesses they'll help them provide financing loans help them with ipos listing their companies and then you also have the swiss domestic bank it's a a global organization with these components that interlock together governance and risk management is essential where we have all these different services provided to customers which may create conflicts of interest a huge amount of the world's very wealthy uh have relationships with swiss banks switzerland has a long history of the rule of lord the swiss franc is very stable switzerland has its historic bank secrecy laws clients can be guaranteed a huge amount of discretion combine that with its steadfast neutrality through multiple world wars then there is also of course the concierge concept of swiss banking you will be looked after they're luxury venues all of that is a package that they use to lure the super rich in zurich you have two main banks you've got credit suisse and you've got ubs credit suisse has for in me certain years played the junior partner but actually credit swiss is within switzerland seen as much more of the swiss national bank the clue is in the name and it is quite literally the bank of switzerland and if you go to zurich right in the center the parada plat square there are its two major financial institutions literally meters from each other kerry swiss is innovative bit more aggressive probably also more risk-taking ubs is much more structured more boring but also less risky credit suisse on a relative scale was probably one of the least effective banks by the financial crisis ubs was the bad boy it had to be bailed out they had insider trading scandals there wasn't the requirement on them to really face up to a lot of the problems that had emerged in the run-up to financial crisis in the immediate years afterwards it's almost as though they didn't get the memo in 2008 when we had the last banking crisis we've seen many banks rehabilitate and change how they operate credit squeeze has not early 2019 and the cogs really start to come loose at credit suisse the chief executive at the time tjan tiam is a debonair gregarious international financial celebrity one of the people he brought in was a former auditor from ey iqbal khan hyper ambitious but the two men whether it was tijan tiam's leadership style or iqbal khan's vaulting ambition started to fall out iqbal khan had bought the house directly next to tijantian on the so-called gold coast of lake zurich and proceeded to knock the entire thing down anyone that's had had a neighbor with construction work knows how annoying this is but it's particularly annoying i think when it's one of your subordinates and the work is consistently going on even on saturdays and they're building a bigger house than you so tijan tiam accused iqbal khan of building a big window which looked into his lounge and in response planted some rather large trees blocking mr khan's view of lake zurich the two men's partners got into a bit of an argument and it very nearly came to blows khan was poached by ubs usually when a big banker or wealth manager leaves they have a long period of gardening leave you are not allowed to work you're not allowed to talk clients you're not allowed to poach staff and zurich is a small town you can walk across it in about 25 minutes so it's impossible not to bump into clients customers potential hires someone at credit suisse decided to hire a spying firm these people started following around iqbal khan and he noticed he stopped his car in the center of zurich and confronted them this is something that usually you watch on tv cars following another car and and this is something not in swiss culture a lot of this was around the bickering between iqbal khan and tijuantia doing unably things to each other and i think that probably struck a lot of swiss as being deeply inappropriate and not discreet conservative it emerged that iqbal khan wasn't the only person credit suisse had had tails this eventually led to the ousting of tj antiem in spring 2020. step forward thomas gottsteen a safe pair of hands really he's of course swiss he'd been in charge of the universal bank here which i guess is the most boring and stable part there was certainly a lot of negative press and but i think that's behind us now and we're really looking forward now to continuing on the successful part within three weeks of gottsteen taking over switzerland was forced into lockdown thomas scottsdean said he wanted 2021 to be a clean slate 2021 however would turn out to be one of the most tumultuous times in credit suisse's 166 year history his promise was completely in tatters you had these two mega scandals that from a financial point of view were vastly more relevant than the spygate affair disaster struck at the beginning of march 2021 credit suisse had been persuading its wealthiest clients to invest in a suite of funds known as the green seal supply chain funds greenster was very heavily linked to an industrialist sanjeev gupta but also softbank the huge japanese technology slash speculative investor not all of the deals that were going down were entirely above board allegations of fraudulent invoices circular financing they're the mass 10 billion of funds from these wealthy clients and the promise was put your money in here it's very safe early 2021 all of the supply chain finance stuff around lex green seal sanjeev gupta and softbank starts to unravel the bonds that credit suites investors had been persuaded by the wealth management unit to invest in were not going to get paid back something as prosaic as insurance policies coming to an end brought these funds to a staggering halt that was a trigger to the collapse underlying that were investments in risky future receivables they were investing in the bet that those monies would be paid over and credit suisse was forced to suspend them locking in 10 billion dollars worth of their clients assets and unleashing one of the biggest scandals in credit suisse's history it's about 2.3 billion of this 10 billion is unaccounted for we are acting um on behalf of investors in greensville um who made their investment through credit suisse to recover losses suffered it's not going to dip into its own reserves to pay the customers it was sold to these are long-standing clients of credit suisse in many cases i speak to some of these clients they are furious and they think they've been lied to these are powerful people credit suisse had a separate relationship with greenster and was courting it in relation to its ipo and there's an argument to be had that blinded it just as credit suisse was reeling from this it lurched from one crisis to the next this time 3000 miles away in new york bill huang's family office archegos capital bill huang had made oversized bets on a few stops using enormous leverage from the so-called prime brokerage businesses of a number of global banks none of the banks knew quite how much leverage bill huang had it's actually 160 billion lots of banks were caught in this morgan stanley ubs credit suisse was left nursing 5.5 billion dollars worth of losses its biggest trading loss in its entire history it sent its share price tumbling regulators were pouring all over it its clients were preparing lawsuits against it and this obviously raised all kinds of questions how the bank's different cogs were fitting together [Music] bill huang had strong relationships with some of the bank's top executives from asia through to the uk credit suisse was really bending over backwards to please him to give him more leverage through its investment bank in order to run more of his money a credit loss of such a magnitude to a single party highlights indeed deficiencies in risk management so the bank spirals further down into crisis it has to raise capital from its long-suffering investors the bank has to publish an absolutely excoriating report from an external law firm the report showed stunning deficiencies and yes this reflects risk culture which credit suisse now clearly says has to change problematic client relationships within wealth management prime broking and investment banking businesses can spiral out of control if you don't have the right culture you don't have the right procedures and you don't have the right technology in place it is a very deep rooted issue which really needs time to be solved credit suisse needs to draw a line under this scandal it needs to hire a heavy hitter to replace embattled and i think at this point discredited chairman erz rohner so they turned to a big deal banker sir antonio horta osorio who was knighted for his turnaround of lloyd's bank after the financial crisis in the uk the idea was that aho as he is often known in the industry would cut a lot of risk which really harmed its ability to generate returns this was seen as the medicine that was required i am vincent kaufman i am the ceo of the esos foundation created by two swiss pension funds to promote sustainable investment we do represent at a credit suisse general meeting between three to five percent we were a bit surprised we were expecting someone from the maybe the swiss economy but then we look at these cvs it's track records and we said that's not a bad idea a good person with a very good knowledge of the private bank and wealth management less on the investment bank and that was for something we also always push reduce this exposure to investment bank to risky assets antonio is portuguese he is very talented and he knows this but he's not swiss this can always be a problem as tijan tian found out tijan tian was criticized for being aloof imperious enjoying the jet set lifestyle too much and that was always going to be a danger for horto rosario his downfall came about from a combination of his hubris self-confidence the way he alienated himself from his executives and his board but also taking the company's private jets for his own personal uses the sheer number of trips he's been taking to lisbon which is not a major revenue earner it's pretty obvious he's he's using the private jet to go home a lot at the heart of the covid lockdowns he flew into london to attend on the same day the wimbledon tennis finals and that very evening watched england lose on penalties to italy in the european championship final by doing so he had contravened the uk's covid rules as a new chair you want to change the culture you have to be free of any any any scandals and repetitional issues when you start violating uh rules yourself then we have a major issue there was a kind of sense that here was yet another outsider being brought in to try and change or manage credit suisse but who had moral failings and ultimately he had to go and the bank is backing crisis again one of the main scandals that reflected tijantian's time at credit suisse was a terrible incident where some of their staff collaborated with a middleman and a russian bank vtb to sell three billion of bonds to the country of mozambique ostensibly to build a fleet of amphibious warfare vehicles to protect a separate fleet of tuna fishing boats but a significant amount of this money was embezzled by the various bankers involved the middlemen and local officials we're actually on behalf of bondholders who are suing credit suisse in connection with bonsai arranged and issued in favor of mozambique the debt is unpaid and undue and owing and it stands at 200 million so credit suisse has settled with all three regulators that investigated it the uk the us and switzerland we're talking a really big deal here it was around 11 billion in part because all world aid was withdrawn and they significantly suffered as a consequence of that and 11 billion dollars translates to around 400 dollars per individual so a country that was already struggling really really struggles significantly as a consequence 2022 has been a long way from the clean slate that gotsteen promised a year earlier beneath that very respectable service and all of those kind of marble lobbies and very smart entrance ways there have been a whole series of dubious dealings over the years credit suisse has been in this long-running dispute over allegations that it helped a bulgarian former wrestler run his international cocaine smuggling ring here was a case that was removing the cover so that we could see the kind of inner mechanics and the way that the the bank had functioned over many years and how risk management or anti-money laundering practices were really completely irrelevant this was historic of course in 2004 and 2007. the

details are shocking their due diligence for their clients is putting bulgarian news articles into google translate and attempting to read them what was really crucial was protecting the secrecy of clients even to the point where headlines about assassinations drug smuggling weren't enough to dissuade risk management from continuing to take money from those clients and it just raises the question how many other clients like this do they have it looks like in emerging countries where uh there is absolutely no regulation criminal uh involved um and money laundering at this at this level is unbelievable just as they're reeling from accidentally financing a cocaine smuggling ring they get hit by another one of these global data leaks so-called swiss leaks data dump this detailed lots of cases where the bank had previously offered a sanctuary to dirty money flowing around the world from family members of kleptocrats and oligarchs corrupt government officials and criminal organizations unwanted links to potential human trafficking embezzlement creditors confirmed ninety percent of those accounts are now closed since 2015. there is still ten percent of the accounts which are still under uh scrutiny so esos at the general meeting 2022 requested a special audit on this uh offer swiss leagues and on the on the green seal affairs because of course the board is requesting internal investigation but they pay the inverter in internal investigation and can decide what they want to publish or not publish because for the greenseed case they decided not to publish the investigation the regulator here finma say that they take a very hard line but crucially it all goes on behind closed doors it's very hard to get a sense of whether the swiss are taking it seriously or not they say oh don't worry finma is doing his work so as investors shareholders or stakeholders of the bank we don't have any clue of what happened a further blow comes the former prime minister of georgia has been suing credit suites in the caribbean with zina even ishvali a client of a rogue private banker who had fleeced a whole load of incredibly wealthy people out of their savings and and funded a lavish lifestyle of rolex watches and fast cars credit swiss had had always played the card that this was a rogue banker and nothing to do with them and he wins he wins a huge judgment against them and the bank is suddenly booking a massive impairment blowing a hole in its latest quarterly results and to capital off credit swiss is facing investigations from regulators in switzerland and the us looking at a deal it struck at the end of 2021 where it tried to pass on a whole load of risk it had taken on by loaning money to oligarchs and other ultra-rich customers when they were buying private jets and yachts boats and planes are obviously risky assets they can be seized if you get onto a sanctions list so credit suisse was trying to syndicate and sell the risk of financing some of these assets out to hedge funds we published a story which sort of laid bare some of these transactions credit suisse got a lot of flack from its clients on the back of that credit suisse is obviously upset and sends out an order to all of their clients all the hedge funds they were trying to sell the risk to asking them to destroy the documents this was a fairly innovative debt deal securitizing this debt and passing it on to investors who are willing to take on the risk and it becomes misinterpreted by regulators as an attempt for them to destroy evidence and now they have to explain to regulators in the u.s and switzerland why they weren't attempting to cover up their business with sanctioned oligarchs the remuneration system gives a wrong incentive to the client relationship manager trying to to to get some net new money at any price risk-taking was in fact rewarded it also doesn't appear to have the right systems and checks and balances we as an organization should have better monitored and control certain behaviors governance and the risk management is for every financial institution critical and central if you're looking at the future viability of its business you've just got some of their top staff in the investment bank in the wealth management unit leaving they're fed up because bonuses are being cut and it's kind of franchise damaging like how long you can can you survive if all of your top people leave talent management is absolutely a key we are continue to be able to attract top-notch talent just look to the caliber of new members of the board we were able to attract just look to the caliber of new executives and the group executives you were able to attract so people see the current situation it's a great brand it's a great franchise under pressure with a lot of upside in the year following the twin collapses of archagus and greensell credit suisse's share price halved the bank said this is very much a transition year and the clock is ticking over whether the bank can come out of this storm unscathed smp global has downgraded trade suicide to a from a plus credit suisse is likely to report depressed results rundown of revenues from investment banking businesses that that they exit and the fruits of restructuring are still to come if it proves successful credit suisse fully acknowledged that the scandals were not just the result of a couple of individuals going off on a frolic i think that is the first step actually towards rehabilitation actually acknowledging that there is a bigger issue we are in a very challenging situation too many things have happened over the last couple of years it's not only about individual mistakes that have happened that is something you need to address from a systemic perspective from an organizational perspective with axel lemon we have a new chairman who knows about risk management he was chief risk officer of drake insurance and then he led ubs space units a big bank with an established global reputation decades old is a very hard thing to kill a lot of people think it will bounce back changing the culture which is so deeply embedded in the bank is going to be very very hard work but that's not to say it can't be achieved if you look at for example example deutsche bank and ubs in my estimates they will still reach a profit this year but clearly it's market dependent it will take a number of years to you know improve the reputation again and there are also tail risk pending from ongoing litigations and investigations a lot of parts of the bank are doing really great we should not forget that it's not a sprint it's more than a marathon it's important that we do quarter by quarter progress the bank is very serious about changing itself but it's like turning a super tanker the question is whether the amount of time that it's going to take is as much time as credit suisse's shareholders are willing to give the executives you have taken very decisive steps it starts at the top with the board of directors fifty percent of our members are new or less than a year in their job we have everywhere new committee chairs including me as the new chairman we have a brand new executive board with 11 out of 13 members that are new shareholders give us credit they believe in credit space but we need to show progress their ambitions would be to return to profitability levels this is not feasible over there foreseeable horizon it's a very difficult time markets are very volatile the situation in ukraine with sanctions against russian individuals and complete collapse of business in russia which was integral to a lot of private banking wealth here in switzerland in challenging time when you are under pressure as an organization you can do things that normally you can't do it's also an opportunity people are watching to see what happens next will it be bought will it be stripped of its assets will it be folded into a merger with ubs who's going to be buying this bank at this time it's cheap but it's cheap for a reason one option would be a spin-off of the swiss business the question really is what happened to the rest of the business there's too many issues for a systemic bank to be taken over neither domestically so a ubs credit suisse merged nor international u.s bank i think they will retain an international business they have good positions in my view let's say in asia i think there is opportunity to grow uh on on wealth management we have a 166 years old history and i'm a strong believer that as an independent company alongside other large banks in europe and in switzerland that's the future of the bank it remains a group of strong international franchise high diversification of revenues strong capital and high buffers of believable debt to protect senior and secure creditors we're not quite sure whether we've reached the bottom of this yet because every month every quarter every year seems to bring more scandal who's to say there won't be another scandal brewing that we won't be hearing about in a few weeks in a few months time we went through a fundamental review of all our risk positions and legacy issues they continue to pop up here and there but i'm confident that we have bottom up and we will bottom up and we will go step by step into the right direction come out of the mainstream station in zurich there's a prominent statue of alfred escher looking down the main thoroughfare of the city if he was looking at the bank today he would be severely disappointed the perception of charismas has obviously changed every additional scandal that comes up the reaction is kind of oh okay it's another one oh yes of course it's crazy the swiss parliament is very weak in relative terms and the executive here the federal council doesn't really like to interfere there's a cultural attitude in some of the banks and financial institutions that maybe means something can be dealt with quietly that's better than having to admit it fully in public problems end up sometimes getting stored up over time because they are not nipped in the bud and so you have as venerable an institution as credit suisse having suddenly to admit this whole slew of scandals secrecy is very important is very ingrained in the swiss do not like their dirty linen aired in public [Music] you

2022-07-18 09:45

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