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Credit Suisse Reveals Where It Went Wrong

Thomas Gottstein, chief executive officer of Credit Suisse Group AG, during a Bloomberg Television interview on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Monday, May 23, 2022. The annual Davos gathering of political leaders, top executives and celebrities runs from May 22 to 26.
Thomas Gottstein, chief executive officer of Credit Suisse Group AG, during a Bloomberg Television interview on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Monday, May 23, 2022. The annual Davos gathering of political leaders, top executives and celebrities runs from May 22 to 26. (Bloomberg)
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Handling bags of cash for a wrestler-turned-cocaine-trafficker is the kind of business you shouldn’t do as an international wealth manager. Credit Suisse Group AG’s criminal money-laundering conviction in Switzerland this week for exactly this is an embarrassment, though not a costly one with total penalties of little more than $20 million. 

The Swiss bank’s defense was the same as for recent revelations about dodgy clients or failures in due diligence: These are historic issues from when things were done differently. Its leaders have been telling us for some time the bank has already changed. 

That claim chimes awkwardly with its deep-dive into risk, compliance and technology presented to investors on Tuesday. The bank’s plan to improve these core functions contained tacit admissions of how poorly they were run until the shocks of its failures with Archegos and Greensill Capital last year.

Take one obvious part: Client risk management. The bank’s chief compliance officer, Rafael Lopez Lorenzo, outlined how it was going to ensure all the people it took on and the transactions they wanted to do were efficiently and effectively reviewed from now on. The key criteria to be examined included sanctions risk, politically exposed persons and convicted persons. It will also make sure it does ongoing know-your-client work and enhanced due diligence for the highest risk customers.

He said this would bring Credit Suisse into line with “best practice in the industry.” That always sounds to me like a euphemism for being no worse than average. I’ve written before about how working with the world’s richest people is always going to involve political and corruption risks. But Credit Suisse ought to have been making these kinds of checks for years, if not decades, already.

The theme behind everything outlined on Tuesday is about changing the bank’s modus operandi from one where its bankers were given fairly free rein to chase fees and revenue wherever they could be found, to one where the Zurich head office is going to have much more control over what can be sold and to whom.

That promises more efficiency and better risk control but means foregoing some business. On top of getting out of prime finance – the business of lending to hedge funds – Credit Suisse has cut superyacht loans by more than 20% in the past year; reduced lending to private-equity buyouts by 25%; and curbed risk in share-backed margin lending. Some cuts should be cyclical: Leveraged loans are going through a bad patch for all banks, for example. But some is business permanently lost.

Credit Suisse’s centralization of control should also ensure all its technology is bought and managed more consistently and efficiently. Joanne Hannaford, the chief technology officer who joined from Goldman Sachs Group Inc. this year, said she was very surprised at the cost-cutting opportunities she found in an audit of its spending. There will be roughly $200 million of savings this year and another $400 million in future, she said. However, analysts including Anke Reingen of RBC Capital Markets were disappointed there wasn’t a new target to cut group costs. 

For investors, the question remains how long the rehabilitation of Credit Suisse takes. The trauma of 2021 has subsided, but it has a lot to rebuild in terms of technology, staff and business practices — all of which will slow its normal operations initially. And while Credit Suisse is busy fixing things, rivals such as UBS Group AG or Morgan Stanley are investing in technology to give them better products and services that are faster and easier to use. Credit Suisse says 2022 will be its transition year. But for shareholders, it looks likely to be playing catch up for much longer than that.

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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