Swiss Finance - Credit Suisse's Complex History

2023-09-15
Summary:

Credit Suisse and UBS, two major Swiss banking giants, have a long history and are closely connected to the Swiss country.

Credit Suisse and its old rival UBS have always been deeply associated with the Swiss country. Their glory and collapse are inextricably linked to the entire country. Today, we not only need to discuss the background of the collapse of Credit Suisse, but more importantly, we need to delve deeper into the complex connection between Credit Suisse and the Swiss government.

CREDIT SUISSE

Credit Suisse was established in 1856, which is correct. It has a history of over 160 years. Until 1934, Switzerland passed a very important bill called the Federal Banking Act. The core of this bill is confidentiality. In short, it stipulates that Swiss banks cannot disclose customer information to anyone, including any third-party institutions, whether they are the US government, the United Nations, or the Swiss government. As long as the customer does not agree or raise objections, the bank cannot disclose it. This is not just a choice, but a legal requirement. You can understand that Swiss banks are not safer because safes are thicker, but because of this law. 


This has attracted many customers around the world who have extremely high privacy requirements, of course, which may also include some less clean money, such as tax evasion, money laundering, drug trading, etc. Even during World War II, the Nazis deposited a large amount of gold in Swiss banks, and Hitler himself also deposited 11 billion imperial marks in Swiss banks. But the Swiss people's philosophy is quite wise. They believe that they should remain neutral, just like a bank that only needs to protect customer information and property security. As for whether the money is legal, they do not care. In addition, Switzerland's political stability and developed country led to the rapid rise of the banking industry after World War II, making it the world's largest offshore financial center.


At the beginning of the 21st century, a quarter of global cross-border private wealth was concentrated in Swiss banks. Among numerous Swiss banks, Credit Suisse and UBS have emerged. These two banks have always had similar business models, customer groups, and even frequent job hopping among employees. Although there are differences in some aspects, overall, these two banks are very similar. UBS is relatively larger, while Credit Suisse is more flashy in certain areas, especially its investment banking department. But overall, they are very similar.


At the beginning of the 21st century, Credit Suisse's influence reached its peak. Although not the absolute leader in various global businesses, it is very famous. In the 2007 ranking, although Credit Suisse did not rank first, it entered the top five in fields such as high-yield bonds, IPOs, and mortgage bonds and performed excellently in other fields. 


This bank has performed particularly well in its private banking and wealth management businesses, especially after undergoing a restructuring in the early 21st century. Credit Suisse's private banking business has maintained a growth rate of nearly 20%, even surpassing its old rival UBS at one point with a market value of $80 billion. During the financial crisis, although Credit Suisse also suffered significant losses, it did not receive government assistance, which is quite remarkable. By contrast, UBS has been able to recover through government assistance.


After the financial crisis, major investment banks and banking businesses are gradually recovering, and at this time, Credit Suisse seems to have risen. However, Credit Suisse's problems have begun to surface. And this problem is not short-term but gradually melting over more than a decade. The first thing to be affected is Credit Suisse's private banking business, which, as we mentioned earlier, has always been a concern because it involves a large amount of potentially unclean money. International organizations have been conducting investigations into Credit Suisse's various businesses since the beginning of the 21st century, mainly focusing on the issue of tax evasion.


In May 2014, Credit Suisse faced unprecedented difficulties and was found guilty of helping US citizens evade taxes, with fines of up to $26.6 billion. In fact, since the 2008 financial crisis, the US Department of Justice has been imposing fines on major banks, including Credit Suisse, UBS, and Faxing. However, Credit Suisse's fine amount far exceeds that of other banks, which also implies how serious its problem is in helping customers evade taxes.


But what makes people laugh is that after Credit Suisse was convicted and fined, its stock price did not fall but slightly increased. Why on earth is this? In fact, the market had long known that Credit Suisse had assisted clients in tax evasion, so this conviction and fine did not come as much surprise to the market. On the contrary, the market believes that the fine amount is relatively low and acceptable. This also marks the beginning of action by the US Department of Justice against Credit Suisse, marking the beginning of Credit Suisse's gradual predicament.


In the same year, in 2014, Switzerland signed a bill called FAST in the United States, requiring the provision of US taxpayer account information to prevent tax evasion. This forced Swiss banks to break previous federal banking laws.


In March 2015, Credit Suisse welcomed a new CEO, Tan Tianzhong. This has attracted widespread attention, as Credit Suisse has had a Chinese CEO for the first time in its history. Tan Tianzhong is a senior banker, and although I won't elaborate on his resume, he can be said to be very experienced. On the day he took office, Credit Suisse's stock price surged by 7.5%, and the market placed high expectations on him. However, an incident that occurred after Tan Tianzhong took office became the headline news in the global financial industry, which was the spy gate incident at Credit Suisse.


There has always been a conflict between Tan Tianzhong and a senior executive of Ruixing, as they are actually neighbors. At a cocktail party in early 2019, they had a heated argument over some minor matters, such as the noise from home decorations and a tree blocking their view. Later, this executive was forced out of Credit Suisse and then joined UBS, taking away some former executives from Credit Suisse. Credit Suisse hired detectives for surveillance in order to gather evidence to suppress this executive, but unexpectedly, the detectives were arrested in public. Later investigations found that this was not the first time Credit Suisse had carried out such actions, as they had previously monitored other executives and third parties.


Although this incident has little to do with Credit Suisse's business, it has had extremely negative impacts. Tan Tianzhong had to resign as CEO, and the market's trust in Credit Suisse further weakened.


In 2021, Credit Suisse underwent another major executive reshuffle, with a new CEO taking office, attempting to reform and reverse its decline. However, changes in the global financial environment have exacerbated Credit Suisse's problems, including interest rate hikes by the Federal Reserve and global liquidity tightening. By the end of 2022, due to the loss of market confidence in Credit Suisse, a large number of deposits and high-net-worth customers began to withdraw, and Credit Suisse's deposit loss exceeded one-third, approximately $140 billion. Market rumors continue, and Credit Suisse seems to be about to fall while the government tries to calm market sentiment.

Historical events at Credit Suisse and UBS
Feature/Event Credit Suisse UBS
Year of Establishment 1856 1862
Federal Banking Act Passed in 1934, emphasizes client confidentiality Passed relatively later, involves client information disclosure
Performance during Financial Crisis Did not receive government bailout, suffered losses Revived with government assistance
2014 Fine Event Fined $26.6 billion for aiding tax evasion Not subjected to similar high fines
Private Banking and Wealth Management Business Under scrutiny, involved in tax evasion issues Relatively stable business with fewer tax evasion concerns
Espionage Scandal CEO resigned, exposed improper monitoring of executives Not involved in similar monitoring incidents
2022 Deposit Loss Loss of over one-third of deposits, around $140 billion No similar scale of deposit loss
Government Intervention Government demanded UBS to acquire Credit Suisse, stabilizing market sentiment Not subjected to similar government demands

In the end, the government requested UBS acquire Credit Suisse, although this was a notice rather than a negotiation. UBS and Credit Suisse reached an agreement after lengthy negotiations, stabilizing market sentiment. However, for Credit Suisse, the issue may be far from resolved.

This series of events marks a significant transformation in the Swiss financial community and also reflects the challenges facing the global financial industry. The collapse of Credit Suisse is a complex story involving confidentiality laws, tax evasion issues, espionage incidents, and the constantly changing global financial environment. The Swiss financial industry still needs to adapt to the constantly changing situation and continue to cope with international and domestic pressures.


Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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