YOU have to smile. Switzerland’s federal prosecutor has launched an investigation into whether the takeover of Credit Suisse by UBS broke Swiss criminal law.
This would be the same merger that was rushed through by government officials, regulators and senior executives at both banks to try and prevent what they believed would be a financial meltdown if Credit Suisse went under.
I am trying to picture how the inquiry will unfold, what level of interrogation, exactly, will be applied.
On the line, as Credit Suisse slid, was Switzerland’s reputation for solidity and probity.
“In light of recent events, the federal prosecutor’s office wants to proactively fulfil its mission and responsibility to contribute to a clean Swiss financial centre and has set up monitoring in order to take immediate action in any situation that falls within its area,” the Berne-based prosecutor said.
It wants to analyse the “numerous aspects of events around Credit Suisse” — including those reported in the media — to “identify and assess any crimes that could fall within the competence of the prosecutor”.
The office, led by the attorney general of Switzerland, Stefan Blattler, has been in contact with national and regional authorities and has issued a number of “investigatory orders” to gather information. His office is expected to interview key officials about the takeover.
I’d love to be a fly on the wall. Here was a bank that was battered by scandal after scandal, that repeatedly displayed senior management incompetence and worse, yet little was done about it. Far from the authorities stepping in then, they chose to let Credit Suisse, and its customers, swing.
It was a bank, too, that was deemed one of the world’s “top 30 too big to fail”. As a result, when it did look as though it was going down, the Swiss government machine pulled out all the stops to ensure that UBS took it over.
But, as we now know, that ended up in a rescue package that saw AT1 bondholders excluded and out of pocket to the tune of $17 billion. Meanwhile, UBS picked up the huge corporation for $3.25 billion, far below its market value.
What the Swiss attorney general would do well to examine was the record of official complacency regarding Credit Suisse. He should ask: is “too big to fail” an excuse for doing nothing?
Here was a bank that in 2014, pleaded guilty to allowing US clients to evade their taxes, leading to a $2.6 billion fine from the US government and New York financial regulators. The US Senate committee has only just concluded, after a two-year investigation, that Credit Suisse then violated its 2014 agreement with the US authorities and concealed more than $700 million from tax collectors. The Senate committee said the Swiss bank continued to help wealthy Americans dodge taxes.
In 2020, Credit Suisse’s then chief executive, Tidjane Thiam, resigned in the wake of two corporate espionage scandals involving senior employees, though he was cleared of involvement.
A year later, the bank lost $5.5 billion on the collapse of US hedge fund Archegos Capital. Last year, an investigation by a global consortium of media titles, based on a leak, showed that fraudsters, criminals and corrupt politicians had deposited £80 billion with Credit Suisse. Customers, many of them Swiss, began withdrawing deposits after this latest scandal broke and amid growing rumours about the bank’s financial health.
According to polls, the merger with UBS is opposed by three-quarters of Swiss citizens. Presumably, some of them are content to have it both ways: they got their money out and now they’d happily see the bank go bust.
This, though, is the problem with the “too big to fail” doctrine. It creates moral hazard, the bank carries on behaving badly, to the point where customers make up their own minds and after that it really can’t continue. An almighty panic ensues and the consequence is a hastily put together lifeline leading to years of litigation and official probing.
We must recognise that if we’re going to stick with “too big to fail”, then we have to get tougher with those 30 banks. Sitting by and watching as a bank repeatedly steps out of line is not an option. “Too big to fail” cannot be a licence for behaving badly.
We must start bringing prosecutions and seeking convictions of individual bankers. “Too big to fail” should not mean “too big to jail”.
Chris Blackhurst is the author of Too Big To Jail: Inside HSBC, the Mexican drug cartels and the greatest banking scandal of the century (Macmillan)
