The demise of Credit Suisse

Usually it is not so much fun to study stories of failure and disaster, however, it is not a bad idea to learn on mistakes. And in the case of Credit Suisse, those mistakes were numerous and indeed very informative.

Let us look at the sad story from a humanistic perspective, leaving to others the opportunity of analyzing the details of financial misfortunes and errors in risk modelling. I want to tell a story of trust, credibility and leadership.

Trust is a precious but fragile treasure. Strength and stability of a bank as a financial institution rely on trust. The example of Credit Suisse demonstrates what happens when the trust is broken, and the institution’s credibility goes down the drain.

A relatively healthy balance sheet and a history of past success cannot save an institution, which nobody trusts anymore.

Pride goeth before destruct. Within a matter of 14 years, the share price went down from CHF 55 in 2009, just after the financial crisis of 2008, to CHF 0.82 in March 2023.

The road to failure was long and consistent, marked with mistakes, arrogance and hiding problems. With a hindsight, missing sense of accountability at all levels cannot go unnoticed.
Former President Urs Rohner, notable absentee today, has been criticized for his lack of sense of responsibility for all mishaps. On numerous occasions, when explaining problems, he blamed the managers and positioned himself as an external referee rather than the lead actor of the drama.

Each scandal was followed with a promise to improve but promises had not been kept.

In 2007 Brady Dougan was appointed CEO of Credit Suisse. Prior to that, he had been the head of investment banking since 2004. His 8 years’ tenure as CEO will be remembered for an almost obsessive focus on investment banking, and skyrocketing salaries and bonuses, contrasting with the much more frugal Swiss approach to compensation. For 2009, the bank paid out a total of CHF 6.85 billion in bonuses, that is CHF 144,000 per employee.

Brady Dougan kept a low-key appearance, driving a Toyota Prius and drinking Coke Zero rather than champagne. Still, in 2009 he earned a salary of CHF 19 million and a bonus of CHF 71 million. The Swiss never appreciated such levels of compensation. Long-time praised Dan Vassella had been heavily criticized when he cashed in an exit bonus of over CHF 70 million upon his departure from Novartis. 
Paying out bonuses considered as outrageous causes mistrust, to say the least. At the General Assembly of Shareholders in 2010 one of the small shareholders said to Dougan: ‘Don’t buy yourself yachts and villas with this money, but try to buy yourself a clear conscience.’

In 2014 the bank pays CHF 2.4 billion in penalty to the US government for helping its US clients evade taxes. Representatives of the bank have to formally excuse themselves in front of the US authorities. Rohner, however, does not feel guilty and blames ‘the bank’ for the catastrophic failure. Former professional hurdle runner and ex-CEO of the media group ProSieben is a dodge master and an expert in making a good impression.  

In 2015 the short era of Tidjane Thiam begins. He suceeds Dougan and is praised above everything by Rohner, who in this way can once again save his skin. An expensive reorganization follows. The investment banking is being split into advisory and transactional divisions. The cost of the reorganization amounts to CHF 6 billion. The share price slides from CHF 25 in 2015 to CHF 10 in summer 2016.
Everything falls apart thanks to Spygate. Thiam orders private detectives to follow the head of wealth management  Iqbal Khan after his move to the rival UBS. In 2019 the affair is discovered. Thiam must go, Rohner stays.

In the last year of his reign Urs Rohner appoints Lara Warner as the bank’s new Chief Risk Officer, despite her lack of earlier experience in managing risk. 
The newest episode of the demise story begins with the fall of Greensill Capital in March 2021. Credit Suisse clients had invested over CHF 10 billion in this unfortunate Supply Chain Finance vehicle. In April 2021 Archegos Capital Management goes belly up, and due to delay in reacting Credit Suisse loses CHF 5 billion.
At the following General Assembly Rohner finally has to go. He is replaced by a Portuguese banker named Antonio Horta-Osorio. The share price keeps going down. In July 2021 it slips to CHF 9.12.
As early as in January 2022 Horta-Osorio leaves the bank, brought down by a series of scandals, unforgivable for the lawful Swiss. Using a company private jet to fly with his family on a holiday in the Maldives, breaking the rules of lockdown and flying to the Wimbledon without observing the quarantine obligation, did not come unnoticed. What does this have to do with the bank’s performance? Well, it does a lot, as this contributes to further breach of trust.

When the bank publishes a profit warning in spring of 2022, the share price slides further to CHF 6.96. 
In summer 2022 Thomas Gottstein loses his job as CEO, blamed for the gigantic losses due to the collapse of  Greensill and Archegos. He is succeeded by Ulrich Koerner, a German naturalized in Switzerland who is known for his expertise in restructuring. Too late as time will tell.
In July the share price is CHF 5.21.
In November the shareholders have to inject further CHF 4 billion into the share capital.
The share price is CHF 3.43.
In February a loss of CHF 7.3 billion in 2022 is declared. The reasons are high cost and a dramatic outflow of clients.
The share price is CHF 2.77.
In March it turns out that the bank must delay publication of official results due to concerns expressed by the US SEC, 
The collapse of Silicon Valley Bank and Signature Bank negatively affects share price of all financial institutions worldwide.
At that time the Saudi Arabian shareholders refuse to continue funding the bank.
The share price slides further to CHF 1.70.
The Swiss central bank injects CHF 50 billion. The share price goes up to CHF 2.02. But this does not hold.
On March 17th the share price goes down to CHF 1.86.
On March 19th at 7:30 pm the takeover by UBS is announced.  
On March 20th the share price is CHF 0.82.
End of story. 
The official reasons of the collapse are:

Oficjalne powody w dużym skrócie:

• Lack of a risk culture,
• Poor management,
• Wrong investment decisions,

Professor Rossi from the University of Fribourg believes that the collapse was caused by greed for bonuses, which led to taking too much risk, which in turn caused colossal financial losses. Scandals and legal litigations played a further role, and the crisis of regional US banks had additionally worsened the climate around the bank.
How could that be possible? Why did it happen? The bank could and had access to the smartest bankers, to the best executives and to the most up-to-date expertise…

What do the Swiss people think? The saw that Credit Suisse had lost its identity and authenticity. Deluded by a vaulted ambition, it wanted to play in the first league of US investment banks. Back in 2021 The Wolf of Wall Street video was mockingly transformed into the Wolf of Bahnhofstrasse, with Leonardo di Caprio renamed as Gregi Pfister. Swiss YouTubers scored a great success but the bank itself did not take notice of the gallows humor.

How to interpret the situation? Where to look for the root cause of the disaster?

Greed for money? Yes, certainly, but… greed is everywhere and not just at Credit Suisse. In my opinion, there are three main reasons behind the collapse:

• Long-term lack of effective leadership
• Loss of identity and authenticity
• Lack of sense of responsibility

Effective leadership provides everyone, from a teller up to the Chairman, with a clear sense of being part of something special, bigger than oneself. Great leaders make everyone feel that they are part of a team building a cathedral, which in turn creates a sense of pride and a sense of belonging. Without such a vision and legend only money counts and everyone fights for their individual bonuses at any price, at any risk, the more the better.

Leadership is about role modeling and safeguarding values. Leadership is about setting directions and taking responsibility. It is not about safeguarding own job and earning loads of money.

Identity is a sense of cohesion and unity between what we do and how we are perceived. The collapse of Credit Suisse had its beginning and its end with the departure from traditional values, and pretending that one is someone else than self. It was caused by the denial or attempt to forget its roots, which were anchored in the local retail and private bank. There appeared to be a fake, a dissonance between the hidden identity and the ‘emperor’s new clothes’, which quickly revealed his nakedness. A Swiss bank, which tries to play in the US super-league, loses its ground, traditions and values.

Lacks of a sense of responsibility, demonstrated on multiple occasions by Rohner, served as a bad example to leaders at all levels. There was a culture where bonuses were awarded for good results but there was no accountability for overly risky, irresponsible decisions. At the same time, problems were hidden under the carpet and difficult decisions were procrastinated.

May this negative example serve as a warning to all (not only) financial institutions. The road towards collapse is shorter than one may think, even for the big and powerful.

Let us, however, finish on a positive note. It is not that difficult to prevent disasters. It is enough to live in accordance with basic values, such as authenticity, responsibility, courage and respect. It is enough to be coherent in what you say and what you do, openly address problems and resolve conflicts with courageous and transparent communication.