What happened to Credit Suisse?
Swiss Francs
The bankruptcy of Archegos Capital Management, the investment vehicle of a billionaire, was a great blow to Credit Suisse, especially since other big banks that had it as a client somehow managed to reduce the damage in the last hundred meters. The collapse of Greensill Capital, a financial services company built on debt with strong ties to the world’s wealthy and broad access to the corridors of political power, also caused major damage, including to the Swiss bank’s customers. They were uninspired investments, but they are part of the life of any financial colossus the size of Credit Suisse. And others had such troubles. But it became obvious that this bank has the most serious problems when the hemorrhaging of capital caused by the withdrawal of deposits by very rich customers could no longer be stopped. Among them are the “insanely rich from Asia”, as described by The Washington Post. Credit Suisse gambled on wealth and was betrayed by the rich. But so did First Republic Bank, the American bank that, had it not been helped by its larger and more powerful competitors, most likely would have collapsed and triggered a panic that was perhaps impossible to control. In 2016, The Wall Street Journal wondered if it was wrong to build a bank only on the basis of wealthy clients. The investor paper referred to First Republic and showed that it made almost no effort to provide home loans to low-income people or to Americans of Latin American or black descent. The WSJ compared First Republic to brands like Ferrari and Prada.
The bank specialized in the rich and ultra-rich clientele and entered the road to bankruptcy when, like Credit Suisse, it was abandoned by it. For some, he bet on the wrong end of rising US income inequality. And Silicon Valley Bank, another American bank that recently went bankrupt, is said to have preferred to court wealthy clients who fled at the first sign of a crisis. It is an aspect that differentiates the banking storm that hit America and Switzerland from the banking collapse of 2007–2009, which also started in the USA. Then the subprime mortgage market collapsed, an effect of the banks’ rush for customers of all kinds. People who are unemployed or have uncertain incomes also received mortgage loans. When the recession began to destroy more and more jobs, millions of bank customers were left without income. But “what do you need to be great about?” In times like this, First Republic management boastfully asked itself, when the waters calmed after the great financial crisis in 2011, to show that it had ranked fourth in a top ranking of banking performance. The answer is “continuity, strong management, deep understanding of the core market, and prudent risk-taking”. The bank was not immune to problems in that crisis, but somehow it managed to slide through them. It was sold to the giant Merrill Lynch in 2007 at a premium, and when the buyer also ran into problems and was bought by Bank of America, it decided to do business independently. In those troubled times, First Republic boasts that customers of other banks found refuge with it. The business model was based, as it is now, on serving wealthy clients, but in the meantime, the wealth management division was expanded with specialists from all the big financial companies on Wall Street, including Goldman Sachs, J.P. Morgan, Morgan Stanley, Wells Fargo, and Merrill Lynch. The story goes that the ideal client was one with a fortune of over a million dollars. It was the big banks that decided to save First Republic from bankruptcy this month with $30 billion in unsecured deposits. But only after they had hunted down the deposits of the wealthy who had fled from the bank that appeared to be dying. If they did not do this, the risk was that panic would hit their customers as well. Credit Suisse also targeted wealth, but not quietly; it went after fortunes in the most dubious corners of the business. Just last year, she was accused of breaking the law by secretly doing business with Russian oligarchs, which was illegal. A parliamentary committee also launched an investigation into a scandal in which the Swiss bank would have asked its clients to destroy documents that would have linked it to loans secured by yachts and private planes granted to oligarchs under sanctions, among others. In Switzerland, the SonntagsZeitung newspaper wrote this year that a third of Russian assets in the country are concentrated at Credit Suisse. Bloomberg has a story about how a single individual, a fixer, made the Swiss bank the main destination for the fortunes of wealthy Russians. War and sanctions interrupted this love story. But the list of clients at odds with the law, morals, or Western democratic values is enormous, ranging from dictators to drug traffickers. Last year, wealthy clients left Credit Suisse in droves, with deposits withdrawn in the fourth quarter alone amounting to $100 billion. This year, she suffered a different kind of hemorrhage: she began to be abandoned by her top bankers. Thus, out of desperation and in order to bring back customers, he offered interest rates on deposits far above those of his rivals. In vain. It was bought by rival UBS in a scheme orchestrated by the Swiss government and central bank.
By Sara Colin
