Credit Suisse, the Risk-Taking Swiss Banking Giant, Succumbs To Crisis (wsj.com) 59
Credit Suisse, the Swiss banking giant that liked to live dangerously, has run out of road. From a report: The bank struck a deal this weekend to be bought by rival UBS Group after an uncontrolled slide in its stock and bonds. The agreement marks the end of 167 years as an independent institution, a humbling comedown for a bank that once went toe-to-toe with U.S. giants on Wall Street and boasted a market value greater than that of Goldman Sachs Group. The bank's downfall has roots in the way it exited the last financial crisis flush with confidence.
When the financial system seized up in 2008, Credit Suisse emerged in better shape than many rivals. It was then slow to adjust to how the crisis changed banking. The lender relied on a freewheeling investment bank, dawdled in its pivot to more stable lines of business and above all failed to shake its predilection for risk. "They felt, 'We are the winner from the financial crisis, and everyone else is hurt,''' said Andreas Venditti, a banking analyst at Vontobel. "So they doubled down on these kinds of businesses and on investment-banking exposure in general." The result was 15 years of scandal, litigation and strategic zigzags while other major banks became more focused, more regulated and more free of drama. A spying imbroglio, a $5.5 billion loss on a single client, executive turnover, fines in connection with tax and sanctions evasion and a fraud settlement over Mozambican loan sales weakened the bank financially while eroding the confidence of investors.
When the financial system seized up in 2008, Credit Suisse emerged in better shape than many rivals. It was then slow to adjust to how the crisis changed banking. The lender relied on a freewheeling investment bank, dawdled in its pivot to more stable lines of business and above all failed to shake its predilection for risk. "They felt, 'We are the winner from the financial crisis, and everyone else is hurt,''' said Andreas Venditti, a banking analyst at Vontobel. "So they doubled down on these kinds of businesses and on investment-banking exposure in general." The result was 15 years of scandal, litigation and strategic zigzags while other major banks became more focused, more regulated and more free of drama. A spying imbroglio, a $5.5 billion loss on a single client, executive turnover, fines in connection with tax and sanctions evasion and a fraud settlement over Mozambican loan sales weakened the bank financially while eroding the confidence of investors.
Must be the last of them (Score:4, Funny)
Surely this is the last of one-off failures of banks! Nothing more can go wrong from this point on.
Re:Must be the last of them (Score:5, Insightful)
Waiting for republicans to blame the collapse of a Swiss bank on Biden.
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Waiting for republicans to blame the collapse of a Swiss bank on Biden.
Corruption knows no political boundaries.
Banks can fall all on their own without politics. More to the point, they also do not actually give a shit if they do fall. Just ask Too Big To Fail.
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Separation of ownership from control (Score:5, Insightful)
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I don't think that you're wrong about the executives not acting as they would have if they had more skin in the game, but it's worth pointing out that many of Credit Suisse's bondholders are being wiped out, while equity holders are at least getting $1/share. It boggles my mind why shareholders should receive compensation before debtholders. Shareholders should be ecstatic that they get anything at this point. UBS apparently insisted on the government taking responsibility for future litigation costs bec
Re:Separation of ownership from control (Score:5, Informative)
Wouldn't they? (Score:3)
This isn't something you can solve with raw capitalism, it requires laws that stop banks & Wall Street (and the Swiss equivalent) from gambling with our lives.
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We had such a thing up until 1999. Now, I wonder who it was that got rid of Glass-Stegal? I remember who it was, and the fallout, and why I consider that family to be commie traitors to this country.
You keep haranguing about Frank-Dodd, but in retrospect, losing Glass-Steagal was the far worse damage.
But do go ahead, blame everyone and anything except yourselves, for your continual collective insistence on voting in traitors into our government. Keep voting with bleeding heart instead of cold, hard thoug
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We had such a thing up until 1999. Now, I wonder who it was that got rid of Glass-Stegal? I remember who it was, and the fallout, and why I consider that family to be commie traitors to this country.
I guess you had to avoid naming that act. It is Gramm-Leach-Bliley Act. Named for its three Republican sponsors. It passed the senate with 92% of the votes. It passed the house with 86% of the votes. Yet, you blame Clinton for it. Insane.
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Re:Wouldn't they? (Score:5, Informative)
I am starting from the assumption that you are making an anti-Clinton, anti-Democrat post.
Further, I am assuming you are referencing the "Gramm–Leach–Bliley Act".
If I am wrong, please forgive me.
The Gramm–Leach–Bliley Act was indeed signed into law by President Clinton.
So, you can be anti-Clinton, if you like. What I find funny is the reference to that family being "commie traitors".
President Clinton made a number of decisions that appear to be to be pretty conservative.
But perhaps you know something I dont.
Moving on.
The Gramm–Leach–Bliley Act was introduced by
Senator Phil Gramm, Republican of Texas
Representative Jim Leach, Republican of Iowa
Representative Thomas Bliley, Republican of Virginia
Notably, Representative John Dingle, Democrat of Michigan, during debate on this act said that banks would become too big to fail.
Initial voting in the House was "bipartisan" with Republicans splitting 205 to 16 against, Democrats splitting 138 to 69 against.
Initial voting in the Senate was not bipartisan, all Republicans voted for it, along with 1 Democrat. The rest of the Democrats voted against.
Reconciliation work purchased Democrat support by adding privacy and anti-red-lining provisions.
So, I am not seeing the justification for a specifically anti-Democrat position.
The wrong lizard might get in (Score:3)
“[Ford said] ".. On its world, the people are people. The leaders are lizards. The people hate the lizards and the lizards rule the people."
"Odd," said Arthur. "I thought you said it was a democracy."
"I did," said Ford. "It is."
"So," said Arthur, hoping he wasn't sounding ridiculously obtuse, "why don't the people get rid of the lizards?"
"It honestly doesn't occur to them," said Ford. "They've all got the vote, so they all pretty much assume that the government they voted in more or less approximates
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I fail to understand how people can keep voting these crooks in.
It's not really complicated.
FTFY
It's not really complicated.
Most smart people won't get into politics knowing it is nothing more than an endless school yard mud throwing match.
So the crooks get into office every time whether you like it or not.
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Don't you understand? Facts have no part in the narrative.
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I guess I dont.
Im not sure how Republicans went from "You are entitled to your own opinion, but not your own facts" to Alternative Facts all the time, everywhere.
I can see that they have, and I get why [ power, making liberals cry ].
I guess I took them at their word that they stood for truth and honor.
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Did Glass-Seagal regulate Swiss banks losing money on bad bets in Mozambique?
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How are you accounting for the CS shareholders actually getting virtually wiped out? Small and large. CS management was definitely not happy with the buyout pricing.
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Doesn't look like anyone is getting a bailout here. Credit Suisse is being bought out by a competitor at a discount.
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> This is what happens when ownership and control are separated.
Until the 1990's, large investment banks were usually partnerships personally owned by the top executives and retired ones, sometimes with unlimited personal liability. And from 1933 to then, they did not blow up, and neither did the commercial banks, until 1980's deregulation.
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"You can be sure that shareholders would not have voted for many of the decisions that the bank made."
The holders of enough shares to make a difference *absolutely want those high risk decisions*. They are diversified against the losses, so they can tolerate greater risks in each individual investment as long as they are uncorrelated.
This is why they give executives "golden parachutes": executives are NOT diversified in their employment, having only one job at a time, so they need to be incentivized the aga
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Swiss here... (Score:5, Interesting)
Lots of people here don't understand why the government got involved. It was the government that brokered a deal, because Credit Suisse was "too big to fail". So now we have one colossus bank - UBS - that represents a really dangerous single point of failure. One hopes that, after UBS has digested this minor little acquisition, the government will force them to divest. One hopes, but there is a saying in German that "hope is the last thing to die..."
Credit Suisse was badly managed for a long time. They did dirty tax business. They pissed off lots of their local retail customers. They took unwarranted risks in their investment banking. They have been screwing up for years. Of course, the people really responsible - the board of directors and all of the previous and current C-Suite occupants - will still collect their money and bonuses, go quiet for a few months, then move on to some other bank. Business as usual.
Not far wrong... (Score:3, Funny)
Head of Credit Suisse was more focused on being trans [dailywire.com] than running a bank, it would seem.
Turned out the only liquidity at the bank was in his gender.
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Not to add legitimacy to the rest of your post by responding, but it was a liquid and well-capitalized bank a week ago.
For all their problems, this aspect of the bank was not badly managed and was well within norms. The crisis unfolded because markets already jittery about two other bank collapses looked to a poorly worded statement from a major stakeholder and triggered a run. No bank survives all its customers leaving, full stop; there is always a breaking point.
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No bank survives all its customers leaving
It wasn't all customers that left.
A well-run bank can EASILY survive half the customers leaving. They were not even close to that level of stable, having MANY unrealized losses that they have to realize after people begin taking money out.
Reducing exposure to that kind of risk is really the only job banks have; instead they speculated and gambled like the rest of the market.
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Also Swiss. Frankly I think what is happening would be propper comeuppenance if it weren't for the fact that the tax payers will get to foot the bill one way or another.
I think they should have split the thing and gifted the parts to the canton banks.
Glass Steagal needs to be brought back (Score:5, Insightful)
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Can we get an idiots guide to what "investment banking" is?
Re:Glass Steagal needs to be brought back (Score:5, Informative)
Investment bank:
Underwriting stock and bond offerings to corporations. (meaning hiring the lawyers to write the lawyer stuff, and hawking the products)
Mergers and Acquisitions.
Market makers for bonds.
Currency trading for speculation which goes along with bond trading (as FX rates highly depend on interest rate changes).
Lending large amounts to corporations and governments.
Sponsoring investment funds.
Lending money to hedge funds, and supposedly margin calling them before they blow up.
Direct bidding on government debt auctions.
What commercial banks typically handle:
Personal and smaller corporate cash management & payroll.
Real estate mortgages
Consumer lending
FX exchange for actual foreign cash transactions
What investment and commercial banks handle:
Institutional real estate lending
The largest bank is JP Morgan Chase. JP Morgan is the investment banking side, and Chase is the commercial banking side.
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Uh, how would the US "Glass-Steagal" law apply to a SWISS bank?
(I take no position on whether Glass-Steagal was A Good Thing or A Bad Thing. I just don't think it's binding on non-US firms, and how it would apply to multi-national banks that do business with a US subsidiary is unclear to me.)
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Uh, how would the US "Glass-Steagal" law apply to a SWISS bank?
Well, it was the repeal of Glass-Steagal that caused the 2008 crisis and literally birthed the concept of Too Big To Fail, which is now a term used in TFS describing exactly the copycat behavior of a multi-national bank.
One would hope that bringing back common sense laws like Glass-Steagal would actually prevent anyone else (including multi-national banks) from abusing the "too big to fail" bullshit excuse ever again. Out of shame, legal repercussion, or both.
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Obviously these bank execs have no shame. Glass-Steagal won't affect the new bloated UBS, HSBC, or their ilk.
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You might be surprised at the extra-territorial elements of US law then (FATCA, anyone?).
But nonetheless, since Credit Suisse merged with First Boston many years ago, a good chunk of the bank has been located in the US and subject to US law. Mostly investment banking.
In summary (Score:2)
Change? What change? (Score:2)
"When the financial system seized up in 2008, Credit Suisse emerged in better shape than many rivals. It was then slow to adjust to how the crisis changed banking..."
It's now 2023. Banks are already failing and those that have failed have already been deemed Too Big To Fail. Many more are at risk of collapsing, which would likely create another "seized up" event.
What exactly has "changed" in banking as we sit here watching the fucking sequel? Do tell.
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If bad banks fail and are replaced by new ones that are better, and the fallout lands mostly on their investors, than that's good.
If bad banks fail and are rolled into banks that are run somewhat better, that's moderately good, but if no new banks are founded in the next economic upswing, that means we're headed in a towards monopoly long-term which is bad. (And I think this is the situation).
If enough banks fail to destabilize the whole system, that's very bad,
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Credit Suisse wasn't subject to Frank-Dodd Act -- that's a US law. That law is a major change. Most people believe that if Dodd-Frank hadn't been removed from the mid-size banks in the USA, we wouldn't have the Silicon Valley failure. So, yes, there has been a major change, and the large US banks are deeply regulated and appear to be exactly as stable as we hope they would be. It would be nice if our European partners in the banking system followed suit. And perhaps Congress will restore Dodd-Frank to the m
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The law had some extra-territorial impact: https://www.davispolk.com/site... [davispolk.com]
Re: Change? What change? (Score:2)
True. I was mostly replying to the OP's sentiment that nothing had changed. It has changed. Doesn't mean it is perfect, but it is way better.
de-list banks (Score:2)
Prevent FEAR/GREED/FUD/BANK RUNS/by de-listing banks from stock markets