A nightmarish déjà-vu: tremors that originate in the American financial system reach a major Swiss bank that does not have its risks under control, has been led into difficulties through incompetence and megalomania, and is known for its unfair business practices. Suddenly, the insurance premiums for the loans they want to take out skyrocket, investors panic, and the bank can’t find any more money on the market.
Now only the state can help, stepping in with aid credits of 50 or 50 euros 60 billion francs. In the years leading up to the crash, the women bankers received luxurious bonuses totaling billions. But the general public must absorb the losses.
That’s how it was at UBS in 2008, and that’s how it is now at Credit Suisse, the other big Swiss bank. One might think that we haven’t learned anything, changed anything, improved anything since the financial crisis. This impression is deceptive on a financial level: the UBS case was systemically and structurally very different from the Credit Suisse case. On a political, social and cultural level, however, this impression is not deceptive at all.
It is again a tale of nefariousness, excessive greed and false incentives. Of blind political complicity and non-existent liability. Banking is essential today more strictly regulatedthe equity ratios are significantly higher than in 2008. And yet history repeats itself.
Die masters of the universe obviously remain untouchable: They continue to earn absurd salaries in the millions. They continue to do gigantic damage. You don’t have to be responsible for anything. And are rescued by state institutions as soon as things get out of hand.
How will 2023 differ from 2008? At that time, the financial system was shaken by a massive systemic crisis. Banks around the world were underfunded and the subprime bubble in the US meant that numerous financial institutions, not only in the US but also in Europe and Switzerland, had huge positions on their books whose value collapsed within a very short time and made the banks practically insolvent.
UBS alone had to in 2007 and in the first half of 2008 Write down more than $60 billion. Supposedly safe investments became “junk securities” overnight, and there was far too little equity to absorb the losses. So the Confederation had to save UBS: on the one hand by injecting capital into the ailing bank, on the other hand by buying the junk securities from UBS for a maximum of 54 billion dollars (in fact it was a little less).
However, UBS was far from to be the only big bank, which had to be rescued with government money – or went bankrupt. After the US government allowed Lehman Brothers to go bankrupt, it had to set up a $700 billion fund to bail out many other big banks and financial institutions. The insurer and financial service provider AIG alone was supported with 180 billion. He’s still in business today. Numerous banks in Europe also took advantage of state aid. In Germany, Commerzbank and Hypo Real Estate were absorbed with 18.2 and 9.8 billion euros respectively. The Dutch ING received 10 billion euros, the British Royal Bank of Scotland was rescued with 45.8 billion pounds.
This list could go on. UBS saw nothing coming in 2008 and failed badly. But most of the other big banks felt the same way. This is exactly what made the financial crisis so serious. However, the UBS management at the time cannot be accused of being more negligent than the competition.
This is where both the good and the bad news lie: in 2023 it will be the other way around. Although the entire global banking system is being affected by rising interest rates and the poor economic prospects – and now in the USA too two major financial institutions have been forced into bankruptcy and others Financial houses need to be supported – there can be no talk of a system collapse up to now.
We are not dealing with a general systemic crisis here – but with massive individual failure. The failure of Credit Suisse management.
What destroyed the Credit Suisse leadership, is the confidence, not the balance sheet. The bank is actually healthy – but no one believes it anymore. Technically speaking: CS has a liquidity crisis and not an insolvency crisis. Her assets are still larger than her debts, which she can actually service without any problems. However, no one wants to lend her any more money. So the Swiss National Bank (SNB) has to guarantee liquidity.
The National Bank will certainly get its billions back because CS can secure the loan with first-class investments. In 2008, the National Bank took over the junk bonds from the American subprime market from UBS. The currency guardians are now getting from the CS first-class Swiss mortgages as collateral. This is a fundamental difference. So are the billions in the SNB not state aid at all, but merely a way of bridging liquidity?
Of course that’s what the Bank friends now on all channels communicate – and it’s not the whole truth. First let Liquidity and insolvency crises never completely separate from each other. We don’t know exactly what CS Stand’s balance sheet looks like today, because it must have sold top-quality investments below price in the last few days in order to raise money. In addition, both liquidity and insolvency crises are always only isolated events. If all goes well, an insolvent bank can also repay state aid at a later date. UBS proved that with the aid money from 2008 – and everything paid off again.
Crucially, however, we do not know the terms of the current CS liquidity support. Everything depends on the interest rate: According to the textbook, this interest rate should be at the upper end of a normal market interest rate. The bank being helped is to receive money, but not preferential terms over the market. Whether this is the case with the current rescue deal seems more than doubtful. Firstly, the SNB does not communicate transparently, and secondly, CS wants its own on the market for 3 billion The bond is bought back. This suggests that the SNB is granting her a preferential interest rate. That would be nothing more than potentially very hefty state aid.
But what actually happened? How can one of the most traditional, internationally leading big banks, which also came through the financial crisis comparatively well, end up in such a mess? The answer is breathtakingly simple: Credit Suisse has gambled away trust. As a result, it is increasingly losing its customers and their funds. And now the credit rating.
Over the past few years, CS has been shaken by so many scandals, legal cases and bad investments that it is difficult to keep track of things. Let’s content ourselves with a brief best-of list:
With archegos and Greensill the big bank crashed two investment funds in spring 2021, which it sold to large customers. The products turned out to be massively leveraged and included absolutely breakneck, high-risk positions. As of today, the bank is losing around $7 billion on these two adventures.
Or the affair at the end of 2021, which roused regulatory authorities around the world: CS is obviously very heavily involved in the Debt financing of oligarch superyachts and oligarch private planes. Because at the end of 2021 it became apparent that the owners of these luxury toys would soon end up on sanctions lists, the yachts would be confiscated and the loans could potentially be lost, CS did something creative financial engineering: She securitized the loans and tried to sell them to risk-taking hedge funds.
When the matter blew up because CS got nervous and asked its business partners to please destroy documents about the construct, it became clear once again how present the major Swiss bank is in business with Russia – and that it has no reservations about the choice their customers.
Or the Mozambique-Skandal: In 2013, CS brokered half of a 2 billion dollar loan for the developing country in southern Africa, which, among other things, should have financed a tuna fishing fleet. 2 billion was about 12 percent of Mozambique’s total gross domestic product at the time. Apparently, however, the CS bankers did not notice what a wild farce the company, which was theoretically guaranteed by the government, was: all the money seeped into obscure channels of corruption. When this was discovered, all international donors withdrew from the country – with serious consequences for the population. Moçambique has plunged into a serious economic crisis, the state budget has been halved, and the already rudimentary education and health systems have been massively damaged. All with the active help of Paradeplatz.
The list could be extended almost indefinitely: the scandals and legal cases seem inexhaustible (the “Financial Times” has good cinema made). And then, of course, not as a secondary aspect, but as an all-determining incentive structure, the bonus excesses added. Brady Dougan earned around 160 million francs in his eight years at CS. Tidjane Thiam around 90 million in his five years. The share price development at that time was a disaster, the company culture that was established has now definitely revealed itself. Dougan and Thiam are responsible. Not to mention the Chairman of the Board of Directors, Urs Rohner, who is said to have received around 50 million for his ten-year mandate from 2011 to 2021.
Is CS a traditional Swiss bank or a criminal organization? This difference appears to be smaller than was ever thought possible. And here we are probably with the most central, most painful and most urgent question that this new big bank crisis is raising: What is Credit Suisse saying about Switzerland?
There is probably no other company that is so closely and extensively interlinked with Swiss economic life as the omnipresent business lender. No other company represents the history of the Swiss business elite and Zurich society with such power – from its founding in 1856 by Alfred Escher to the business captains Rainer Gut and Walter Kielholz, who were not just bankers but also key figures in the leadership of the Swiss establishment.
What does Credit Suisse say about Swiss credit – the moral, legal, business, cultural credibility that we have today? We are not experiencing a global system failure, but the singular failure of a business culture. Ours.
We are the country that is hiding behind a pretended neutrality in the Russia-Ukraine war and is not taking any responsibility. The country that maneuvers itself offside in Europe without need and damages its economic relations with nationalistic stubbornness. And now we are the country that, in its traditional, most traditional business field, is showing a slovenliness that you simply would never have thought possible.
Will the CS survive on its own? It doesn’t look good, but we don’t know. The only certainty today is that thousands of CS employees will lose their jobs. And that something urgently needs to change in this country.
Illustration: Alex Solman
