For decades, the Swiss financial center lived well from its secrecy and discretion. That’s in the past, as the scandalous events surrounding Credit Suisse (CS) show. Again and again, Swiss financial institutions make international headlines. Neither investors nor the money location can like that.

The former Schweizerische Kreditanstalt, founded in 1856 and now stylishly modern, resides on Zurich’s Paradeplatz, not far from the lake and in the midst of chic boutiques, restaurants and hotels: Credit Suisse Group AG. The second largest bank in the Confederation after UBS has everything that characterizes the location – confidentiality, dignity, and super-rich customers – but also scandals of almost every shade. They cost them a lot and are likely to damage the entire financial center.

One thing is now certain: Credit Suisse needs money. Lot of money. There is currently talk of four billion Swiss francs to finance the planned and urgently needed restructuring of the bank. Because the proud financial house is in trouble. The American investment bank Goldman Sachs has just forecast a deficit of up to eight billion francs by 2024. Such sums cannot be raised by selling parts of the bank alone, at least not that quickly. Is there a risk of a source of fire emanating from the stronghold of security and reliability, from stable Switzerland, which shines in the heart of Europe with low inflation rates, that could shake the banking scene and possibly other sectors far beyond the country in the long term?

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The recent past of CS is characterized above all by one thing, which suggests deep-seated problems: At the top it is like a dovecote. One boss replaces the other. The German-Swiss banker Ulrich Körner, who has only been in office since the summer, is now to present a restructuring plan by October 27, supported by the Chairman of the Board of Directors, Axel Lehmann, who has also only been in this position since 2022. Credit Suisse had made a horrendous loss of billions in 2021, mainly because of misspeculation with the American hedge fund Archegos Capital and funds from Greensill, now insolvent.

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Also in 2021, a whole series of tasty details about years of misconduct came to light – there was a spy affair in-house, in which the former boss had his employees monitored by detectives, the Bulgarian drug mafia used CS for money laundering and the bank remained inactive; she mediated billions in loans to state-owned companies in Mozambique, the money inexplicably seeped away in dark machinations. And then there was a bank employee who covered his own losses by siphoning off money from wealthy customers. In Switzerland, which prides itself on harsh controls, all of this was apparently possible. Accusations and revelations are still wafting through the financial world as far as the CS accounts of Russian oligarchs, Arab and African potentates and other billionaires with more or less blood on their hands are concerned. Whatever you thought you knew about the Swiss banking world from crime novels, it was true at Credit Suisse.

Credit Suisse will also lose billions in 2022. In order to prove that it still has sufficient cash reserves, Credit Suisse has already bought back its own paper for three billion francs – which gave the stock market a short-term boost. However, since the bank is also putting up what is probably its most prestigious property for sale, namely the noble Zurich Hotel Savoy Baur en Ville, 200 years old and worth around 400 million francs – the rumor mill did not come to rest. However, none of this affects the self-confidence of the Swiss in relation to their finances.

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“We don’t have an image problem. We have a success problem. When you’re successful, there are always people who don’t think it’s great. There are many different voices. I don’t see the situation as too dramatic. Rather, the question arises as to how other financial centers deal with transparency. How does the EU deal with it, like the USA? How many Russian fortunes are there? The media could ask that.” This is a quote from the President of the Swiss Banking Association, Marcel Rohner, from September 2022. Rohner was once the head of the neighboring UBS before he was replaced by the former head of Credit Suisse. People know each other well in Zurich. In September, everyone involved assured that they knew all the information about the latest CS scandals. But then it came out that the American judiciary was also investigating Credit Suisse for continuing to support US citizens in tax avoidance. So the legend that everything was now open was not true.

The striving for higher things in the Zurich or Geneva financial center does not fit in at all: “To secure its reputation on the global markets, it has to be well regulated. The approach pursued in politics to date, of carefully translating international recommendations into national law, if expedient also with increased requirements (Swiss finish), has proven its worth”. This is how the magazine “Schweizer Bank” advertises the financial center, which accounts for ten percent of the country’s economic output. There are 228 banks in the country, two of which are classified as systemically important worldwide, and Credit Suisse is one of them.

The Swiss Ministry of Foreign Affairs (FDFA) therefore praises its own financial industry in terms of advertising all over the world: “Switzerland implements international standards in relation to tax issues, combating money laundering and terrorist financing as well as financial market stability. At the same time, it creates the legal and regulatory conditions that allow the financial center to offer high-quality products and services and to be innovative,” according to self-promotion on the Internet. Again and again, however, the facts contradict such claims. The allegation by whistleblowers that the listed Swiss financial service provider Leonteq was only a few days old had gotten away with money laundering and tax evasion by “looking the other way” by the auditing company EY, known in this country at the latest since the Wirecard bankruptcy. The allegations, as is so often the case: “… the documents and records viewed in connection with the transactions raise questions about weak controls, a culture of rule-breaking and poor corporate governance at Leonteq,” according to the British Financial Times about the documents leaked to it. Swiss finish? none.

In previous scandals, the Swiss were usually able to avert the worst by paying high fines – such as the risk of being included on the list of global capital flight and tax havens. These days, however, the global economic situation does not allow for any major leaps by those caught. Credit Suisse will probably only come out of the crisis with further capital increases – which will dilute the value of the existing shareholders, which is why the stock market price of CS is already falling to new lows, currently around four francs. This results in a vicious circle: the lower the price, the more new paper Credit Suisse would have to issue in order to raise the targeted capital, and the lower the share of value held by existing shareholders.

Johann Scholtz, an analyst at the Morningstar fund house, still comments on the situation as follows: “We do not believe that Credit Suisse is threatened with insolvency.” However, it would have to raise capital because otherwise it could lose its creditworthiness – which it does in the end would shake. But Scholtz is convinced that there is no risk of a disaster like that of Lehman Brothers in the financial crisis 15 years ago. Banks around the world are better equipped with higher capital ratios and the fact that Credit Suisse also generates sales in Swiss francs – alongside the US dollar, one of the best-performing currencies in the world this year – speaks for itself.

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