Fraud, Spying and a Mysterious Death - Credit Suisse

it's a very historic Moment In global banking history the investors clearly questioned the solidity of the entire banking system in the Western World once a Titan on Wall Street Credit Suisse has been hit by a series of missteps and compliance failures over the last few years that have damaged its reputation with both clients and investors hi welcome to another episode of Code Fusion less than a week after the crash of three U.S banks a financial Panic seemed to spread over to Europe hitting the weakest link in the chain credit Swiss the buyout of the Swiss giant has marked arguably the most severe event in banking since the 2008 crisis while the failure is part of a much larger problem with confidence in the banking sector the truth is that its demise was no surprise to people in the industry in fact credit Swiss could be called one of the worst large banks in existence from shaky financials fraud and money laundering to hiring spies and a mysterious death of a private investigator Credit Suisse was the problematic child of the European Financial system it got caught up in virtually every Scandal and found itself in multiple bombshell cases in the recent past but how exactly did one of the biggest banks in Europe go from being a well-respected institution to being a complete mess and more importantly what are the after effects of the collapse of Credit Suisse this is the story of Credit Suisse and its inevitable demise thank you [Music] Credit Suisse was founded in 1856 by politician and businessman Alfred Escher its initial purpose was to fund Switzerland's first Railway system and avoid dependence on the French banking system the bank played a major role in its country's Industrial Development it financed infrastructure projects such as the construction of the first electric grid while also aiding in the development of the Swiss currency they expanded their operations throughout the latter half of the 19th century providing banking services to the Swiss middle class and establishing their presence in the United States after the decimation of Europe in World War II Credit Suisse was instrumental in restructuring Europe's economy and they acquired several other Swiss banks in the process when their presence all over Europe was established they were able to become one of the most respective and prestigious financial institutions in the world but even during these early days of business there were some signs of things to come for instance in a quiet Italian branch of the business local authorities found out that the client's cash was channeled off the books aiding them with tax evasion despite the minor hiccups the bank was able to maintain its reputation and throughout the 1980s and 90s it continued to expand its Global operations through a series of mergers and Acquisitions they became a Powerhouse of European and even World banking the rapid growth also bred a new culture risk be damned its growth at all costs more customers meant bigger profits and therein lied their focus this also created dangerous behaviors and eventually led to Major controversies including the 2006 involvement of hiding Iranian transactions from U.S authorities despite that once the 2008 crisis arrived the firm was much more prepared than most banks for what was about to happen while still engaged in the mortgage Market that sank the rest of the financial World they were able to escape without needing any government help despite steep losses something that didn't happen to their closest competitor UBS UBS is going to play a key role in this story later on but we'll get to that in the following years after the 2008 crash the bank recovered but again its reputation was put into question as more scandals regarding tax evasion emerged probes into its operation were launched and some former employees were arrested in Brazil the US and Germany and this was all only the beginning foreign in 2014 U.S authorities found that for decades The Firm destroyed bank records and concealed transactions involving Undeclared accounts Attorney General Eric Holder would State quote they failed to take even the most basic steps to ensure compliance with tax laws critic Swiss was found guilty and had to pay a fine of 2.5 billion to put this into perspective this was the largest bank to plead guilty to a criminal charge in more than two decades the toxic culture within the company had fully taken hold and it was going to be hard to reverse following the incident both the chairman and CEO of the bank were forced to resign leaving a hot seat for anyone who came after them it only took two years in 2016 for credit Swiss to be back to their old tricks this time they caused an economic crisis in Mozambique Swiss firm along with a Russian Investment Bank vtb Capital gave two billion dollars worth of backdoor loans to the country the funds were supposed to be for maritime related projects but ended up being misappropriated some of the funds ended up in the Mozambique military once the secret loans were discovered financial aid from the IMF and others ceased the nation's currency plummeted inflation roared and an economic crisis ensued three former Credit Suisse Bankers were arrested in the US and UK for fraud and money laundering it was a careless disaster that affected the lives of countless people in Mozambique the reputation of credit Swiss was in shambles but there was one man who thought he was fit for the job to bring the company back to its former glory his name was to Jane theom a former head of one of the largest insurance companies in Britain with the nomination the new CEO began by setting his three-year restructuring plan in motion and surprisingly the plan worked in 2018 for the first time in four years the company had a profit although despite how successful the plan was financially more scandals plagued the Swiss bank the internal culture only got worse and ironically this was the time that upper management caused a national level incident we're talking about the infamous Espionage scandal [Music] you see in 2019 the former head of wealth management for Credit Suisse left the company to work for UBS which was located just a few blocks away it then came to light that he was being followed by a private investigator and later on the police found out that the Spy was hired by none other than the CEO of credit Swiss himself UBS was a rival bank so he didn't want Khan taking any credit Swiss employees or clients and bringing them over to UBS after the incident The Firm played down the episode and called it an isolated act but Switzerland's Financial Regulators disagreed according to them credit Swiss planned and carried out most of seven different spying operations between 2016 and 2019 and then something extremely suspicious happened days after opening an official trial the private investigator hired to Trail Khan mysteriously died committing suicide none of the executives were found guilty despite everyone knowing that the CEO of Credit Suisse to Jane thiem had hired their spiers despite no convictions the Scandal was too large to ignore and so the chairman the head of the bank's security and later the CEO all had to resign I did not order directly or indirectly production do you feel like you need to rebuild trust with some of your constituents um no not from the not from what I can see but but you haven't had clients actually question by pulling out money it hasn't had any impact like that is your input once again the bank was in need of a new restructuring plan yet by the time the new CEO Thomas gottstein got to work the pandemic stock market craze were slowing down and now companies that relied too much on Leverage in their financial operations were in trouble two of the main culprits that affected credit Swiss were green seal capital and the infamous ARCA ghost capital and we've done a full episode on the latter both firms collapsed after one another arcagos had risky bets on a concentrated selection of stocks when the price dropped they defaulted on their margin calls this resulted in a fire sale of stocks that led to billions of dollars in losses in banks credit Swiss was the worst hit greens Hill capital on the other hand was the supply chain finance company that collapsed due to poor risk management it was later found out that Credit Suisse was not only investing in these firms but it also allowed them to engage in Risky activities Landing them millions of dollars in a legal document about the case it was stated that quote the Arca ghost-related losses sustained by credit Swiss are the result of a fundamental failure of management and controls in credit swiss's Investment Bank and specifically its prime services division the business was focused on maximizing short-term profits and failed to reign in and indeed enabled archigo's voracious risk-taking the series of disasters culminated in credit Swiss losing 15 billion dollars in a single quarter this was a dire situation and the bank needed yet another new leader to sort this out the man for the job was Antonio horta Osorio he was a former leads banking group CEO and was selected as the new chairman in May of 2021 with a reputation for managing successful turnarounds Antonio decided to go to the heart of credit Swiss he wanted to change the culture and bring better risk management and as you've guessed his promise didn't stand the test of time he was forced to resign less than a year later because he broke quarantine rules although he had something very interesting to say about the company he said that Credit Suisse was worse than anything he'd experienced running several banks in his 35-year career this situation created a lack of confidence in the bank making their shares slide 50 percent since the peak before the Spy scandal as it turns out Antonio may have actually been lucky because 2022 would prove to be a nightmare for the firm in February a major leak revealed that dozens of international entities publicly known for their involvement in human rights abuses drug trafficking corruption money laundering and other serious crimes all had their funds stashed away in Credit Suisse a total sum of their deposits exceeded 100 billion dollars in March credit Swiss had to pay half a billion dollars in Damages over a fraud case at his Bermuda Insurance arm in June the Swiss bank was found guilty in a money laundering case involving a cocaine trafficking ring in Bulgaria and with all of that the company's reputation was in complete shambles and by the end of 2022 many financial advisors even began to recommend that clients take their money out of the firm as things were only going to get worse around this time rumors began to surface that the company was in distress and by the end of the year the bank had registered more than 100 billion dollars in customer deposit outflow the CEO was once again replaced and a new restructuring plan put in motion but at this stage who really thought this was going to work as 2023 rolled around a new set of macroeconomic conditions sent the company on a new trajectory this time they would not recover [Music] it all started on March 14th days after the demise of Silicon Valley Bank credit Swiss delayed their annual report but when it finally arrived the bank admitted to quote material weakness in its Financial controls on top of that a laundry list of fines and criminal settlements had come back to bite the bank they reported an annual loss of more than 7 billion dollars Morningstar banking analyst Johann Schultz explains it best quote regarding the financial reporting controls issue it seems that it could not have come for a worse time for Credit Suisse as we have once again seen with the svb debacle trust and confidence are everything in banking Credit Suisse was already under pressure from its depositors and other funding providers lost confidence leading to substantial withdrawals in Q4 of 2022 as clients started to pull their money out another blow hit the bank one of its biggest shareholders the Saudi National Bank stated publicly that it would not provide the bank with more liquidity once the news hit the stock of credit Swiss dropped 24 in a day the Swiss National Bank could no longer stay out of it if credit Swiss went down the Swiss economy and reputation would be Gravely injured and so in a desperate attempt to reassure the public the Swiss National Bank injected close to 50 billion dollars in the distressed firm unfortunately for them the move did not work major financial institutions were cutting ties with the Swiss Giant and client withdrawals at one point reached 10 billion dollars per day it is down an incredible 60 in morning trading so essentially losing more than half of its market capitalization that was the biggest loss since the global financial crisis back in 2008. as Friday closed the Swiss government knew that they needed a solution otherwise the prospects were Grim the entire Financial system of Europe would be at risk as such they began to look for a bank to buy out the distressed credit Swiss [Music] at this point it's important to remember that the Swiss are a very closed and proud State selling one of its biggest banks to a foreign firm was never really on the table due to the massive size of Credit Suisse the only viable option was its main rival UBS contrary to Credit Suisse UBS had been doing quite well over the past few years they had 7.6 billion dollars in profit in 2022 and had good Confidence from investors their stock had even Rose 24 over the past few years they look like a great candidate and the deal was made Global investment firm UBS has agreed to take over its competitor Credit Suisse after much debate the final form of the deal was drafted it involved a 60 plus discount on the closing price of credit Swiss and 100 billion dollars in liquidity for the losses for UBS and on March 19th the deal was made public after 167 years of History credit Swiss seized its operations [Music] the controversial deal was able to save the Swiss economy and its beloved banking sector yet many people are raising questions over the legitimacy of State involvement in the negotiation of the deal according to the reports UBS and Credit Suisse Executives did not meet over the weekend to discuss the deal it was the government and the Swiss Central Bank that orchestrated the move behind the scenes but that's not the main issue the true problem is how the deal was made UBS is a public company and as such its shareholders have to approve major decisions it takes six days to have an emergency conference and reach an agreement but this time the government made an exception that allowed UBS to override that rule the move was particularly unpopular with the parliament of the country after all under Switzerland's political system Parliament is needed to ratify emergency Decisions by the government something that didn't happen this time around the Social Democratic party has already promised to vote for a special Parliament inquiry to hold the banks and the government's feet to the flame and this sentiment is almost universally held across the political Spectrum if the situation keeps escalating we might witness a political upheaving in the making as for UBS while the deal seems like a bargain eliminating their competition and solidifying them as the biggest bank in Switzerland the truth may be different new reports seem to indicate that over half the Swiss population is against the merger of the two Banks the cultures within the two firms are completely distinct so a split should not be off the table for UBS however arguably the most worrisome part for UBS is the effects that this deal would have on its reputation the US Department of Justice is already looking into the former credit swiss's involvement in helping Russian oligarchs evade sanctions UBS is likely going to find a lot of skeletons and credit swiss's closet and the Swiss banking system may lose what's left of its reputation as for the rest of the world the confidence in the banking system has only gotten worse Europeans are looking out for the next weak spot even if a bank has all the required ratios in place it can easily go down if enough withdrawals are made at once so far it seems like the next in line is Deutsche Bank Stuart Cole head macro Economist at Equity Capital said quote it has been in the spotlight for a while now in a similar way to how Credit Suisse has been it has gone through various restructurings and changes of leaderships in attempts to get it back on a solid footing but so far none of these efforts appear to have worked so we should keep an eye out to see what happens with that firm this whole situation should have central banks and governments around the world looking closely they can act fast and break the rules saving the economy while infuriating the masses or act slowly and possibly blow up their entire economy in the process they'll all be looking closely to see what happens in Swiss politics in the future so there you have it the story of the rise and fall of Credit Suisse from one of the most respected Banks to money laundering fraud spying and a complete collapse let me know what you guys thought in the comments section below anyway that's about it from me my name is the gogo and you've been watching cold fusion and I'll catch you again soon for the next episode cheers guys have a good one [Music] foreign Fusion it's me thinking

Channel: ColdFusion

Views: 852,759

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Id: sAslAvRaYfo

Length: 18min 30sec (1110 seconds)

Published: Wed May 03 2023