In March 2023, bank runs were proving internationally contagious, just as Covid had done. A panic among depositors of smaller US lenders had spread to customers of Credit Suisse.
As the crisis deepened, I asked executives at the Swiss lender for a quiet reality check. They said Credit Suisse remained highly solvent across a reassuringly wide range of metrics. Still, it would be helpful if the Swiss National Bank stepped in with a promise of financial support, they added revealingly.
I quizzed them about the other large banks whose day-to-day transactions help create the liquidity which supports them all. Were those counterparties shunning Credit Suisse?
Clear answer came there none. Credit Suisse really was teetering on the brink of collapse, as everyone suspected.
That weekend, larger rival UBS took over Credit Suisse for the bargain price of $3.25bn. The acquisition was engineered by Swiss authorities rattled by the prospect of a wider financial crisis.
Memories of Credit Suisse are now defined by the chaos of those few days. Duncan Mavin puts the turmoil in context in Meltdown, a lucid 320-page account of how the greed and complacency of bosses and employees destroyed the bank.
Mavin writes that the collapse of Credit Suisse “had been decades in the making. The whole of the bank’s troubled history was a prelude to this humbling, humiliating meltdown.”
It was a landmark moment in European finance. A great institution with a history stretching back to 1856 had imploded in public view. As a Swiss bank, it was meant to be a paragon of safety and secrecy.
Bankers in southern Europe, regarded as feckless by some northern European counterparts, enjoyed a frisson summed up better by a German word than Mediterranean alternatives: schadenfreude.
The problems of large organisations are sometimes deemed to reflect the defects of leaders. A fish rots from the head, supposedly. Credit Suisse had a fondness for appointing deal-hungry Wall Streeters such as Allen Wheat and Brady Dougan to senior roles. The tolerance of the board and these recruits for risk fomented recklessness.
At Credit Suisse, the nether parts of the fish required little encouragement from the pointy end to putrefy. In banking, misaligned incentives can encourage misbehaviour: staff may reap short-term rewards for deals that may prove costly to their employer in the longer term.
The greatest failures of Credit Suisse’s compliance and risk officers are concisely catalogued by Mavin, a former Wall Street Journal reporter and editor. They range from a 1970s Ponzi scheme funded by Italian tax dodgers to a 2021 face plant by New York Hedge fund client Archegos.
Mavin’s trickiest task is to provide a fair assessment of Tidjane Thiam’s five-year attempt to turn the business around. The French-Ivorian ran the bank from 2015 to 2020, creating a new reporting structure and reining in the investment bank. He is a divisive figure. Critics claim this incomer from the humdrum world of insurance was out of his depth at Credit Suisse. Supporters believe the trouble shooter was undermined by self-serving middle managers and Switzerland’s business elite, their distrust tinged by racism.
Mavin’s view is that Thiam stabilised Credit Suisse financially but antagonised potential allies with his presidential style of leadership. It is all very well to be smarter and more charismatic than your colleagues. It is dangerous to make your awareness of these disparities too obvious.
Thiam tried to distance himself from the surveillance by Credit Suisse of wealth management boss Iqbal Khan, a protégé of the chief executive who had become his rival. This failed a logical test of a kind Thiam himself was fond of: if he did not know about it, he should have done. Threatened with the sack in 2020, he quit instead. He was replaced by Thomas Gottstein, a low-key Swiss.
Pegasus Books published Meltdown in the US this month. It appeared as a Pan Macmillan title in the UK late last year. It focuses heavily on Credit Suisse’s wayward investment bank, a perennial also-ran on Wall Street and in the City of London. The book starts as a financial history, gathering pace with the incumbency of John Mack as co-chief executive in the noughties. By the time we get to Thiam, Meltdown is a page turner.
The narrative is propelled by the contention that recurring scandals made the collapse of Credit Suisse inevitable. That smacks of hindsight wisdom. Outsiders have historically suspected Barclays and Deutsche Bank of harbouring rotten cultures of their own. They are still standing. Credit Suisse might be too, if Thiam had succeeded.
Meltdown: Greed, Scandal and the Collapse of Credit Suisse by Duncan Mavin Pegasus, $29.95 336 pages / published in the UK as Meltdown: Scandal, Sleaze and the Collapse of Credit Suisse, Pan Macmillan £22
Jonathan Guthrie is a former head of Lex
