from Mozambique to the Wimbledon- Corriere.it scandal
What is the dream of any European banker? Buy or merge with a Swiss institution and move the registered office to a Swiss city. Reason? Escape the stringent examinations of the ECB sheriffs and be controlled by the Swiss central bank (SNB) or by FINMA, the two authorities that have supervisory tasks. Beyond the obvious provocation that the Credit Suisse case is raising doubts involving both the top management who led the institution and the authorities themselves. Getting to the heart of the matter the simple question. Leaving aside the BNS which has more macro tasks, why did Finma, which is responsible for prudential supervision, seem almost absent from the affair?
Not an easy answer. The starting point remains the centrality of Bern. After the crisis in London and the exodus of the Russian oligarchs (although some prefer Turkey) the Swiss territory has once again become the safe of Europe. But a chest must be strictly guarded. Hence the singularity of the Credit Suisse case.
A series of scandals
The institute has been in the spotlight for years due to scandals, fines and changes at the top. Can it be said that there has been a lack of vigilance? The benevolent claim not. Any authority works under cover and in silence, but the crisis of the institution risked undermining Switzerland's very credibility. Finma, chaired by Marlene Amstad, has sovereign powers over banks, insurance companies, managers and aims to protect savers as well as the functionality of the markets. The institution began its activity in 2009. The Parliament has given it greater autonomy compared to the three authorities that preceded it. To fulfill the supervisory function, it enjoys functional and financial independence. The legislator conceived Finma as a public law entity with legal personality. The organs that compose it are the board of directors and the management. While acting as an independent authority, it is perfectly integrated into the Swiss state system. The president, for example, appointed by the Federal Council. In particular, it is subject to high parliamentary supervision and is required to report its actions to the Commissions. It is not financed by taxpayers, but by supervisory fees. In a nutshell, it collects fees for the control procedures. The board draws up the objectives which it presents every four years to the Federal Council for approval. To achieve the intended goals, it has an organization that provides for a clear separation between strategic management, the task of the board of directors, and operational management.
What went wrong
it is clear that in the Credit Suisse case something went wrong. In the first nine months, the institute lost 5.9 billion Swiss francs (four billion in the third quarter). Numbers that forced the bank to a capital increase and a complete reorganization. The new plan aims to reduce costs by 15% with a cut in the workforce of 9 thousand units. a profound reorganization of the investment bank is envisaged and a 40% reduction in RWAs (risk-weighted assets) through interventions in four areas. In particular, the capital markets and advisory activities will be renamed Cs First Boston, with the idea of starting preferential partnerships, while the non-strategic activities will be transferred to the Capital release unit to be disposed of. The bank also reached an agreement to transfer a significant portion of the securitization business to vehicles operated by Apollo and Pimco.
The capital increase
The bank then launched a capital increase of four billion francs which went through last week. Acceptances of the offer reached over 98%, reducing to a minimum the assumption for the banks involved in the consortium. To make it digestible, the increase was divided into two tranches. The first of around 1.78 billion, reserved for institutional investors, saw the entry into the shareholding structure of the Saudi National Bank (9.9% of the capital). The second tranche of over 2.2 billion closed last week with a 32% discount on the reference price. The second shareholder is Qatar Holding, which has rounded up its share above 5%. The Middle Eastern formation then completed by the asset manager Olayan Group who participated for 4.9%. Names that are not surprising given that an important slice of the clientele is domiciled on the shores of the Persian Gulf. The Anglo-Saxon investors led by Dodge Cox (4.9%), Harris Associates (4.9%), BlackRock (4.5%) and Silchester International (3%) could not be missing. moreover, it is interesting to observe how the intervention of the Saudi crown prince and Prime Minister, Mohammad bin Salman, is mainly linked to First Boston, where he is expected to invest another 500 million dollars. The historic subsidiary of Credit Suisse in investment banking will be led by top manager Michael Klein. Precisely his designation would have convinced bin Salman, given that the banker was adviser to the Saudi monarchy on the occasion of the Saudi Aramco IPO.
The successful capital raise is a milestone for the new Credit Suisse and will allow us to further underpin our priorities from a strong capital position and create a simpler, more stable and more client-focused bank, he said the new CEO Ulrich Koerner. Thanks to the restructuring and the resources raised, Credit Suisse could put an end to difficult years. The real crisis started in 2021 with the Greensill and Archegos Capital cases which cost heavy losses. But the institute had already been involved in judicial stories in the past. In 2014, former executive Kareem Serageldin was convicted of concealing losses in his securities portfolio. Two years later, the institute paid a $5.3 billion fine to the US government for misleading investors about subprime risk. It has also decided to close a criminal investigation (paying 109 million) in Italy for the story of an alleged fraud carried out through false policies. In February 2020, CEO Tidjane Thiam resigned (in his place Thomas Gottstein) for spying on former head of wealth management Iqbal Khan and former HR manager Peter Goerke.
From Mozambique to Covid
The bank was fined over a millionaire scandal in Mozambique. Earlier this year, Antonio Horta-Osorio was forced out of the presidency because he attended the Wimbledon final without complying with the rules relating to Covid-19. Finally, the bank paid almost 240 million in France to avoid a trial aggravated by tax fraud. In the meantime, the helm passed to Axel Lehmann who with Koerner faced the financial and reputational crisis. A first step has been taken. The capital strengthening should stabilize the bank and stop the exodus of customers. There are also those who believe that the intervention by Saudi Arabia and Qatar, mediated by various US investment banks, has geopolitical reasons. That is, stop Chinese interventions. Are Saudi and UAE capitals therefore deployed in a defensive key, fearing an Asian offer? The thesis fascinating but difficult to prove. The only certainty that Switzerland wants to go back to being a safe home and a strategic crossroads for the control of world capital. Perhaps with a more present vigilance.