Too close to the wind (eBook)

Why Credit Suisse had to go down

Dirk Schütz (Autor)

eBook Download: EPUB

2023 | 1. Auflage
158 Seiten
Beobachter-Edition (Verlag)
978-3-03875-513-5 (ISBN)

Infos

It was a high-wire act that the Swiss authorities had to perform in four fateful days in March 2023: the biggest merger in the banking world since the financial crisis. What really happened in those dramatic 96 hours? Could the catastrophe have been avoided? And how could Credit Suisse of all banks - one of the few global financial institutions to have emerged from the financial crisis stronger than before - end up in such an epochal predicament? Peppered with much hitherto unknown information, this book provides the first detailed insider's account of the dramatic downfall of the Swiss-American money house, which always sailed very close to the wind - and in the end went down.

Dirk Schütz, journalist and economist, wrote the book about Switzerland's last big bank merger in 1998 as a young journalist on BILANZ - entitled 'The Fall of UBS'. A quarter of a century and several stations later, as editorin-chief of the business magazine, he could not resist shedding more light on the historic takeover of Credit Suisse by UBS.

Textauszug

2. Two gamblers

The most dangerous club in the world was founded after the near-collapse of the financial system in 2008. Of course, it had an unwieldy name, as was usual in the financial world: G-SIFIs was its initial name – “Global Systemically Important Financial Institutions. But after successful lobbying, the insurance companies said goodbye to the club, and so since 2019 it has been called G-SIBs – Global Systemically Important Banks.

The members are appointed by a discreet body in Switzerland, or more precisely in Basel: the Financial Stability Board, to which the 20 largest economies in the world send their representatives and which is located in a highly secure tower in Basel. This is the seat of the Bank for International Settlements (BIS), a central bank of central banks. Every two months, the heads of the world’s central banks meet behind locked doors.

Actually, no one wants to be part of the club, because the members are subject to particularly strict regulations: they are considered so dangerous because they could shake up the entire financial system – the demise of the Wall Street firm Lehman Brothers in 2008 had impressively documented the potential for horror. No other industry has this power to drag the entire global economy into the abyss – which is why it was heavily regulated even before the financial crisis. As this did not prevent the catastrophe, it was tightened up again. Since 2013, the current list of high-risk names have come from Basel every November. But not being on the list also means not playing in the world league.

At the end of 2022, there were eight American, four Chinese, three Japanese and two Canadian banks. European banks still made up 13 members, seven of them from the eurozone. The differences between the club members were great. Each bank cultivated its own culture and tradition. JP Morgan, for example, had risen to become the hub of the American economy at the beginning of the 20th century under its namesake John Pierpont Morgan: the not so empathetic big financier steered the American economy from his yacht at the gates of New York. More than 100 years later, this role had passed to JP Morgan’s long-time dominator Jamie Dimon, who towered over the American banking scene – and thus, of course, from his modest point of view, over the entire banking world.

The British HSBC: as the Hong Kong and Shanghai Banking Corporation, the bank of the former Empire – still global, but also somewhat bogged down and ponderous. From 6 pm, according to the myth from the great days, the bosses treated themselves to the first drinks and staff appraisals allegedly still sometimes began with the words: “Get off the booze.” The Wall Street icon Goldman Sachs: ‘greedy, but long-term greedy’, still a role model for all the houses that were looking for a quick buck, but unfortunately failed too often. Deutsche Bank: arrogant at home, amateurish abroad.

Two Swiss banks were also part of the club, a special honour for the small country with just eight million inhabitants: UBS, particularly battered by the financial crisis and with losses of more than CHF 50 billion, only narrowly escaped death, but nevertheless was still the number one in the Alpine country. And Credit Suisse, the eternal number two, but relatively speaking one of the winners of the financial crisis: it had kept its hands off the disastrous real estate paper that had dragged so many banks into the abyss early on.

And just as the Alpine country was proud of its special role as a self-confident non-EU member in the heart of Europe, so were the two Swiss banks of their special status. Because their home market was small, they had expanded abroad early on and built up global units in two key businesses: investment banking and wealth management. But the emphasis was different: the more sedate UBS focused on the more boring money management. At the wilder Credit Suisse, the risk-taking investment bankers set the tone.

The good thing about it was that since their bosses compared themselves to the highly paid leaders of the Wall Street firms, the two big Swiss banks paid them double-digit million salaries. Nowhere else in Europe was like that. The European competitors looked on enviously at Zurich. It was the European version of the American financial pecking order: at the top the investment bankers, then the asset managers, at the bottom the retail bankers. And insurance managers? They were also passably paid. But still grey. Second league.

When the first list of the Basel Club appeared in 2013, Credit Suisse was still considered the healthier of the two major Swiss banks. But that changed dramatically in the following years. In November 2022, when Credit Suisse was included on the list for the last time, it had slipped to last place in terms of reputation. The most dangerous bank in the world’s most dangerous club came from, of all places, solid Switzerland.

The reason? It too had a very special culture.

Its founder was probably the most legendary figure in the Swiss economy. Alfred Escher, born in 1819, had founded the bank in 1856 as the proud Schweizerische Kreditanstalt and in his pioneering years had risen to become the first financier of modern Switzerland. He also founded the global reinsurer Swiss Re, the life insurance company Swiss Life and, as a particularly important legacy, the Swiss Federal Institute of Technology. It was to become world famous and make the city on the Limmat a sought-after location for technology giants such as Google.

Escher’s passion was railway construction, and for this he used the new bank very intensively, half financed by the liberal Zurich bourgeoisie, the other half from Germany. Through the bank, he invested heavily in his own railway projects, which nowadays would earn him a particularly sharp look from the authorities. First, his own Nordostbahn received money from the bank, then Escher plunged into his greatest adventure: the financing of the Gotthard railway. Those were chaotic times, the railway business had high costs with meagre profits, with the inevitable result: both railways had to be nationalised.

Escher was a daredevil, an adventurer, today one would probably say a gambler. The normal banking business, in which correct bank officials collected the money at low interest rates and carried it on for high interest rates, was not his thing, and the accumulation of wealth for the wealthy, a service that Swiss banks were later to carry around the world, was too dull for him. He wanted to build, create, change Switzerland – and took great risks in doing so.

Wild loans were granted without real examination, often the money was lost. His statue in front of Zurich’s main railway station still towers larger than life over Bahnhofstrasse today. But Escher, who was later so revered, died in 1882 a controversial figure – he had not been invited to the first Gotthard breakthrough in 1880. In its self-portrayal, the bank described itself as an entrepreneurial bank even in his time. But the line separating it from a gambler’s bank was very thin even then.

It would be a little too easy to trace the lineage of the founding father directly to the end of the once-proud bank. But the fact is this basic cultural identity of having to be better, faster, more inventive, permeated the bank from its beginnings and continued throughout the 167 years of its existence – until the bitter end.

The traditional business was later left to others, first and foremost at UBS, where predecessor bank SBG had taken the lead in the 1960s, one of the then still five large Swiss banks and which attracted the rich around the world under the protection of banking secrecy – including many shady characters. In 1964, the British Labour politician George Brown invented the term ‘Gnomes of Zurich’. The distorted image of the discreet but unscrupulous Swiss banker went around the world and provided the James Bond producers and many other film-makers with the best villain role model.

And because simple wealth management was too unattractive for SKA and the lead of UBS too big, it needed fresh money from other areas. There was simply a lack of capital for the big entry into the home markets of the European neighbours. And asset management for large institutional clients, such as pension funds, was still in its infancy. Admittedly, there were large money-raising houses in the US, such as Fidelity, Templeton and Vanguard, but their business was considered just as unexciting as domestic wealth management.

And so the bank developed a special longing early on: it had already founded the Swiss American Corporation in New York in 1939 to help companies raise capital through share issues, and in 1964 it became the first major Swiss bank to receive a full banking licence in the financial metropolis.

So what could be more natural, more than any other bank in Europe, than to become involved with the great power of the gambling world – the heroes of Wall Street? It was a young banker named Rainer Emil Gut, born in 1932, son of a director of Zuger Kantonalbank, who, after a banking apprenticeship without university attendance, went off adventurously to New York and took over the management of the small representative office of SBG at the age of just 31.

From there, he moved to the dignified Wall Street house Lazard Frères and then took over the management of Swiss American Corporation in the financial metropolis. Gut spent the most formative decade of his life on Wall Street before returning to Switzerland in 1973 as head of SKA’s foreign business, together with his American wife Josephine. “She’s tougher than he is” was the common saying that journalists copied from each other, as the couple never appeared in...

Produkt-Details

• Erscheint lt. Verlag: 25.8.2023
• Sprache: englisch
• Themenwelt: Wirtschaft
• ISBN-10: 3-03875-513-3 / 3038755133
• ISBN-13: 978-3-03875-513-5 / 9783038755135