A Brief History of Credit Suisse  

Switzerland as we know it today came into existence a comparatively short time ago. Previously independent 22 cantons united and formed a country only in 1848. The new state faced the task of creating a common economy that would be a modern economy at the same time. All Switzerland had back then was a watch-making industry, cotton fields, and a few small banks. A true economic revolution was required. Alfred Escher was the man to lead the revolution.

Switzerland needed new railroads badly at that time. There was only one railroad line between Strasbourg and Basel and was operated by a French company.

In accordance with the Constitution of 1848, only the Federal Government could decide who could build railroads in Switzerland. In 1852, however, Escher pushed the bill that allowed cantonal governments to sign business contracts with railroad builders. A year later, Escher created the Northeast Railway Company (Schweizerische Nordostbahn, NOB).

Railroad construction is a large-scale and highly expensive project. The banking system was so weak in Switzerland at that time that the construction companies had to apply for loans to foreign banks. Their participation in strategic development of the country was not what the Swiss Government was looking for.

Alfred Escher was the man to solve the problem. He founded Schweizerische Kreditanstalt (SKA) in 1856 and it was a bank that gave credits to businesses. Initially, Escher gave out loans to his own railroad construction company but soon SKA turned into the largest credit organization not only in Zurich but also in the whole of Switzerland. This was exactly the company that would later become known as Credit Suisse. Credit Suisse was among the most dependable Swiss banks for years and years until its recent collapse.  

Troubles begin

SKA bank was actively expanding geographically. Already in 1870, it opened its first foreign office in New York. In search of an American partner, SKA managers turned their eyes to First Boston, an American investment bank.

For several years, the cooperation brought large profits to SKA. First Boston was referred to as a ‘superstar of European markets’. Later, however, it turned out that First Boston gave out loans right and left without worrying about the debtors’ solvency.

Eventually, First Boston gave out so many bad loans that SKA had to rescue its hapless partner by allocating $725 million to America. As a result, First Boston was fully taken over by the Swiss Bank, which ended its independent existence. However, First Boston was to cause more trouble later.

In 1977, it turned out that the SKA division in Chiasso (a town on the border with Italy) had been implementing a fraudulent scheme for 10 years behind the backs of the unsuspecting top managers of the bank. Three bank officers working for the Chiasso division had created a shell company in Liechtenstein and used it to launder the money of wealthy Italian clients. The division had been showing an unusually strong financial performance, which ultimately attracted the attention of Swiss regulators.  

The investigations resulted in the largest fine in the history of SKA (1.4 billion Swiss francs), serious reputational losses, and resignation of the bank’s management. After the scandal, SKA started reorganizing its business. It was not a Zurich bank anymore but an international financial organization. The name of the company was gradually changed from the German Schweizerische Kreditanstalt to the French Credit Suisse. In 1982, the bank incorporated a sister company – CS Holding. First Boston that had collapsed in 1988 was renamed to CS First Boston after it had been rescued. Finally, CS Holding became the parent company of SKA Group in 1989.

However, the ultimate transformation was complete only after a few large acquisitions. In 1990, CS bought Bank Leu, the oldest bank in Switzerland. In 1993, it acquired the controlling interest in the fifth largest bank in Switzerland, Swiss Volksbank.

Finally, on January 1, 1997, the renaming of CS Holding to Credit Suisse Group was announced. At that time, the Group was split into four divisions: Credit Suisse Volksbank (later Credit Suisse Bank) was now responsible for banking operations in Switzerland; Credit Suisse Private Banking was responsible for servicing wealthy clients; Credit Suisse Asset Management — for asset management; а Credit Suisse First Boston — for corporate and investment banking.

The restructuring of Credit Suisse helped a lot: its year-end profits were up 20%. At the same time, First Boston remained a burden for the company. It was the only loss-making division in 1997.

Nightmare times begin

The beginning of the XXI century marked the start of an endless series of scandals, fines and resignations for Credit Suisse. Since mid-2000, the bank has been in the epicenter of a scandal almost every year.  

Multiple episodes of providing assistance in tax evasion, help to Iran in spite of sanctions, manipulations with mortgage bonds in 2007, criminal prosecution of a dozen of bank officers in Brazil in 2008, a cartel conspiracy to manipulate LIBOR rates found out in 2013, collapse of Greensill Capital and Archegos Capital in 2021, and a great number of other scandals. This resulted not only in a decreasing number of customers and loss of confidence in the bank but also in multibillion fines levied by Governments of several countries.

Over the last 22 years, the bank went through restructuring thrice hoping to increase its profits and hide the trouble-making First Boston. Thus, in 2002, the bank put all the profitable divisions in one organization whose mission was to provide financial services while CS First Boston remained a separate entity. In 2004, Credit Suisse carried out another restructuring, adding an insurance division and switching to a ‘universal bank’ model.

Later, the restructuring efforts continued but the investment banking division was unable to stop making losses. In 2022, Ulrich Koerner, the new CEO decided to separate the investment banking company from Credit Suisse with the intention to sell it to somebody.  

However, Credit Suisse was unable to put this idea into reality. The bank ended 2022 with a colossal loss of $7.9 billion, which was the worst result since the 2008 crisis. The bank’s market capitalization plummeted from $87.8 in 2007 to $13 billion by the beginning of 2023.

2023 inherited the problems from 2022: bankruptcy of the American Silicon Valley Bank and Signature Bank caused great concern among investors. In addition to that, a large shareholder of CS — Saudi National Bank — announced lack of intention to increase investments in the Swiss bank as it had already reached the set limit of 10% of ownership. These factors brought Credit Suisse market capitalization down to $8 billion.

The Swiss authorities tried to rescue the legend of the country’s banking system. But even the financial assistance of $ 54 billion did not allow the bank to win back the customers’ trust. Eventually, UBS, the main competitor of Credit Suisse, was almost forced to save the falling bank.

UBS did not want to buy Credit Suisse and said that it would not pay not more than $1 billion. Under pressure from the Government, however, it agreed to buy the bank for $3.3 billion. At the same time, one could hardly call it ‘a purchase deal’ because the acquisition is going to be fully financed by the Swiss Government. It will give out loans to UBS that can cover the takeover and all the possible losses that Credit Suisse could make in the future.