Finance: no-credit Suisse

By Richard North - March 16, 2023

I am not in the least bit qualified to comment on global finance – not that this has deterred me in the past. But when it comes to the goings-on of the Swiss banking giant, Credit Suisse, it helps to have a Swiss-born neighbour who works in banking.

For some years he has been telling me of the corruption, incompetence and downright fraud in the bank, how it is held together will Sellotape and string, and how it could collapse at any time, with potentially devastating effect on the global banking system.

Such is the egregious nature of the bank’s behaviour that it takes very little effort to substantiate the charges. This handy website provides a convenient list of three main highlights.

This starts in 2014, when the bank pleaded guilty to charges of tax fraud from the US Department of Justice after admitting to its part in a conspiracy to help US taxpayers hide offshore accounts from the IRS.

According to the DoJ website (linked above), the plea agreement, along with agreements made with state and federal agencies, required the bank to pay out total of approximately $2.6 billion – approximately $1.8 billion in a criminal fine and restitution, $100 million to the Federal Reserve and $715 million to the New York State Department of Financial Services.

Then, in 2017, the bank was again starring on the DoJ website when a $5.28 billion settlement was announced, relating to Credit Suisse’s conduct in the packaging, securitization, issuance, marketing and sale of residential mortgage-backed securities (RMBS) between 2005 and 2007.

The bank was required to pay $2.48 billion as a civil penalty and another $2.8 billion in other relief, including relief to underwater homeowners, distressed borrowers and affected communities, in the form of loan forgiveness and financing for affordable housing.

In 2022, it was the French government’s turn, with Le Monde reporting on 24 October that Credit Suisse had agreed to pay €238 million ($234 million) to avoid prosecution on French money laundering and tax fraud charges.

The settlement comprised a fine of €123 million and an additional €115 million in damages and interest to the French state, all relating to the findings of a 2016 investigation which found that 5,000 French nationals had undeclared Credit Suisse accounts that were hiding €2 billion.

The judge presiding over the settlement said that Credit Suisse bankers had prospected for clients in high-end French restaurants and hotels, avoiding the bank’s offices in the country. In response, the bank was quick to announce that the settlement “does not comprise a recognition of criminal liability”.

Earlier in the year, though, the Guardian had been on the case, publicising massive leaks from a whistleblower which exposed “the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes”.

Details of accounts linked to 30,000 Credit Suisse clients all over the world were contained in the leak, initially leaked to the German newspaper Süddeutsche Zeitung, with the details explored by a consortium of European newspapers, including the Guardian.

Account holders, who had amassed wealth of more than 100 billion Swiss francs (£80 billion) stashed in the bank, were involved in torture, drug trafficking, money laundering, corruption and other serious crimes. The leak, said the Guardian at the time, “points to widespread failures of due diligence by Credit Suisse, despite repeated pledges over decades to weed out dubious clients and illicit funds”.

The paper then followed up with a comprehensive list of the bank’s wrong-doings, ranging from its complicity in helping the Philippine dictator Ferdinand Marcos (and his wife, Imelda) to store some of the estimated $5-10 billion stolen from the country during his three terms as president, reported in 1986.

Running through the charge sheet, which culminated in 2021 with the so-called Mozambique “tuna bonds” loan scandal, when the bank was fined by global regulators nearly £350 million for a scam which involved “significant kickbacks” worth at least $137 million, including $50 million for bankers at Credit Suisse.

That year the bank had already been mired in scandals associated with the collapse of Greensill Capital and Archegos Capital, where the bank had lost $5.5 billion through what was described as “incompetence”, after the release of a report that chronicled the “fundamental failure of management and controls” behind the debacle.

The lack of direct criminal liability in this case turned out to be the exception, confirmed the following year, in June 2022 when the Bank was fined around £1.7 million and ordered to pay £15 million to the Swiss government for involvement in money laundering related to a Bulgarian drugs ring.

One was (and is), therefore, entitled to ask whether Credit Suisse is simply one vast criminal enterprise masquerading as a bank, especially now when the bank is in serious trouble to the extent that it is threatening the stability of the European banking system, with possible global implications.

Thus, we are told, when the City focus should have been on the budget, Credit Suisse “has dominated everyone’s attention on the trading floor”.

For years, it is acknowledged, Credit Suisse has been the bad apple of the European banking industry. A series of costly and cack-handed blunders had cost it billions and seen its share price slide almost continuously. But, yesterday, what had been a slow-burning mess exploded into an acute crisis that triggered a scramble across City trading floors.

Market sentiment, we are reminded, was already febrile following the collapse of Silicon Valley Bank (SVB) and amid lingering concerns about Credit Suisse. But when Ammar Al Khudairy, chairman of the Saudi National Bank and a major investor in CS, ruled out any further support, his words were described as “like a match thrown into gasoline”.

Investors have been “frantically” seeking to figure out how bad things are and what it meant for the wider economy. The result is said to have been wild swings in prices of everything from oil to gold and government debt.

Where this now takes us is anyone’s guess, but the situation has not been improved by the bank’s disclosure that it had found “material weaknesses” in its financial reporting controls for 2021 and 2022, after recording a record loss of 7.3 billion Swiss francs (£6.6 billion) last year.

Nevertheless, the Bank of England is claiming that that the UK banking system is not at risk and “remains safe, sound, and well-capitalised”, while Credit Suisse is still regarded as one of those banks which is “too big to fail”.

The great concern, of course, is that “contagion” will rip through the industry and, despite reassuring words from high-profile financiers (and less reassuring from others), experience of the global meltdown in 2008 reminds us that banking crises can very quickly spiral out of control.

If – as is feared – we see yet another collapse, triggered once again by a bank run by a bunch of crooks, there must surely be some reckoning.