What has gone wrong at Credit Suisse - explained
Updated: 15 Mar 2023,Edited By Sayantani BiswasCredit Suisse Group AG's annual bonus pool plunged 50% to 1 billion francs after 2022 brought a loss that wiped out a decade’s worth of profit. Reasons?
- A plunging share price,
- an exodus of wealthy clients and
- erosion of bank’s credibility.
Currently, the annual bonus pool has them hanging their hopes on a 70% jump in stock prices. At such a time Credit Suisse's Chief Executive Officer Ulrich Koerner told Bloomberg that the reshaped bank will be more focused and less risky. “We will be very profitable and we will reward shareholders."
Meanwhile, Credit Suisse Group AG’s top executive said he expects to take the firm’s carved-out investment bank, First Boston, public by 2025, Bloomberg reported.
What went wrong with credit Suisse?
On Tuesday, 14 March, Credit Suisse said in its 2022 annual report the bank
- has identified "material weaknesses" in internal controls over financial reporting and
- not yet stemmed customer outflows.
The reporting weaknesses come as Credit Suisse is seeking to recover from a string of scandals that have undermined the confidence of investors and clients. Customer outflows in the fourth quarter rose to more than 110 billion Swiss francs ($120 billion).
Where did it all begin?
In the 1980s and 1990s, Credit Suisse merged with First Boston to create Credit Suisse First Boston, which was its investment banking division till 2006.
At the end of 2021, Credit Suisse reported over 1.6 trillion Swiss francs in assets and over 50,000 employees in the institution.
Credit Suisse has a domestic Swiss bank plus wealth management, investment banking, and asset management operations.
Credit Suisse's Troubles
In 2019, the Chief Operating Officer, Pierre-Olivier Bouée was discovered to have hired private investigators to spy on high-level employees and was fired shortly after. The private investigator also mysteriously "took his own life," the bank reported, while announcing Bouée's removal.
In March 2021, a month before the Archegos scandal went public, Credit Suisse also announced that it was closing and liquidating several investor funds, worth $10 billion, provided to another financial services company, Greensill capital. Greensill declared insolvency in March 2021.
Investors reportedly lost close to $3 billion because of this.
In February 2022, a massive leak of over 30,000 of Credit Suisse's clients revealed over $100 billion in wealth held by people who had profited from "torture, drug trafficking, money laundering, corruption and other serious crimes," according to The Guardian.
This revelation also hurt the bank's reputability further, amplifying investor concerns.
The bank has also changed top leadership multiple times since 2019, with the most recent changes coming in July 2022, with the group getting a new CEO.
The group's Chairman Axel Lehmann only took over from previous chairman Antonio Horta-Osorio in January 2022, after Horta-Osorio resigned for breaking quarantine rules during the pandemic.
Will the 2025 IPO be their salvation?
Ulrich Koerner, the chief executive officer of Credit Suisse, on Tuesday informed that the bank plans to take Credit Suisse's carved-out investment bank First Boston public by 2025.
This comes amid a search for investors.
While the First Boston spinoff is a centerpiece of Koerner’s restructuring plan, the CEO seeks to protect the best-performing investment bank parts, such as advising on mergers and acquisitions, while pivoting the parent company further toward wealth management.
Credit Suisse announced earlier today that senior leaders in the carved-out unit are expected to receive up to 20% of shares. Employees would receive restricted share units after an IPO, which would vest three years later and be subject to a further holding requirement.
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