Credit Suisse, founded as Schweizerische Kreditanstalt by Alfred Escher in 1856, was once an engine of Switzerland’s modernisation, funding both railways and infrastructure. However, by the time of its collapse last year, the bank had become a national embarrassment. In Meltdown: Scandal, Sleaze and the Collapse of Credit Suisse, Duncan Mavin charts how a Swiss national champion was brought down by a rogues gallery of entitled bankers, many of whom were so obsessed with the size of their next bonus that they didn’t really care whether the bank survived in the long term or whether customers were fleeced.
One of the earliest scandals to beset the bank was the Chiasso affair of the 1970s. Named after a town in southern Switzerland near the Italian border, this saw the bank facilitate money laundering and tax fraud on a grand scale for wealthy Italian clients, resulting in losses of $800 million. After the scandal, Mavin says, there ‘wasn’t much soul-searching’. This is a theme of the book: whenever the bank was rocked by a scandal, it didn’t seem keen to learn any lessons, often preferring to deny wrongdoing, obstruct inquiries and hide or shred evidence.
In the aftermath of the Chiasso affair, Credit Suisse focused on international expansion, notably in the United States. In 1978, it partnered with First Boston, a high-energy US investment bank, in which it took a controlling stake in 1988. The move, Mavin argues, marked the beginning of the bank’s downward spiral. Credit Suisse First Boston was one of the first banks to shift the parameters of risk – whether this meant buying mortgage-backed securities, offering complex financial instruments to enable corporates to hide their losses or cosying up to post-Soviet billionaire oligarchs.
In the late 1990s and early 2000s, a series of wider problems – including the Asian financial crisis, the Russian default and the bursting of the dotcom bubble – took the stuffing out of the bank. But instead of rethinking its strategy, Credit Suisse doubled down, buying another US investment bank, Donaldson, Lufkin & Jenrette, a move that Mavin describes as a ‘colossal waste of shareholders’ money that dragged the bank down for years’.
Duncan Mavin’s Meltdown exposes a rogues gallery of entitled bankers
Dominant characters in Duncan Mavin’s Meltdown include the Wall Street banker John Mack – known as ‘Mack the Knife’ for his cost-cutting skills – and the German Oswald Grübel – who earned the moniker ‘Saint Ossie’ because he briefly revived the bank’s fortunes. Grübel, who resigned in 2011 as chief executive of UBS after taking responsibility for rogue trader Kweku Adoboli’s $2.3 billion losses, is one of the few top bankers to emerge from Meltdown with his reputation intact.
Many of his peers preferred to use their status as chairman or chief executive to develop luxurious lifestyles rather than address Credit Suisse’s toxic culture. Former insurance executive Tidjane Thiam, who became CEO in 2015, clashed with regulators and suffered from having to carry the can for scandals predating his arrival. These included the Mozambique ‘tuna bonds’ affair and the Lescaudron scandal, in which a rogue employee defrauded wealthy clients, including billionaire former Georgian prime minister Bidzina Ivanishvili.
On Thiam’s watch, Credit Suisse also had to pay $5.3 billion to the US authorities over the misselling of mortgage-backed securities. Yet it wasn’t such scandals that did for Thiam’s career. It was ‘spygate’, an almost comical affair that saw the bank hire private investigators to surveil Thiam’s ex-colleague Iqbal Khan. Despite denying involvement, Thiam resigned in February 2020, a decision influenced by the damaging public fallout.
The Zurich-based firm’s troubles continued. In late 2020, Swiss prosecutors indicted it for laundering millions of dollars belonging to Bulgarian drug smugglers. The bank then lost some $10 billion of clients’ money invested in supply-chain finance funds managed by Lex Greensill’s Greensill Capital (for which former British prime minister David Cameron had become a frenetic lobbyist). Credit Suisse’s involvement with Greensill, an Australian melon farmer turned financier, exposed the gullibility of its bankers, who Mavin says were impressed by his ‘fleet of private jets, smart suits, big vision and political connections’.
Another blow came with the collapse of Archegos, a hedge fund run by South Korean-born investor Bill Hwang. Ignoring red flags, Credit Suisse acted as Archegos’s ‘prime broker’, facilitating trades and lending funds to accelerate its growth. When the hedge fund collapsed in 2021, the bank lost $5.5 billion.
Then came a supposed saviour in the shape of António Horta-Osório, a former Lloyds Banking Group CEO. However, according to Mavin, in Switzerland, the Portuguese-British banker was regarded as a flashy foreigner and a hypocrite who clamped down on costs while living the life of a celebrity. Horta-Osório had to resign after nine months for breaking Covid-19 quarantine rules and using the company’s private jet for jollies.
A hammer blow came in October 2022, when a tweet from the Australian journalist David Taylor suggested that a major international bank was on the brink of failure. Even though Taylor didn’t name the bank, there was online speculation it was Credit Suisse. After the tweet went viral, there was a run on the bank, with clients withdrawing an astonishing $100 billion over a few days.
Then came the coup de grace. The collapse in March 2023 of Silicon Valley Bank sparked a global banking panic. Credit Suisse proved particularly vulnerable. Horrified by the complacency of its leadership, Swiss finance minister Karin Keller-Sutter advised the bank it was going to be either wound down or be taken over. In the end, she opted for a rescue by its main Swiss rival, UBS, underpinned by substantial support from the Swiss National Bank. After 167 years, the bank’s independent existence was over.
Meltdown is a powerful and well-researched exposé of a bank that deserved to die. My main criticisms are that, though he alludes to external auditors, Mavin doesn’t mention them by name or outline issues with their work (for the record, Credit Suisse was audited by KPMG from 1989 to 2020, and then by PwC). Nor does he mention that saving one atrociously managed bank by merging it with its biggest local competitor brings significant societal risks – not only of entrenching bad behaviour but also of diminishing local competition. Overall, however, Mavin’s Meltdown is an object lesson in how not to run a bank.
This book review was published in Literary Review in November 2024.