Too Swiss to Fail: The Great Men of Credit Suisse's History
When great institutions fail, we rush to find systemic causes. In "Meltdown," Duncan Mavin explains Credit Suisse's collapse through a grand theory of cultural contradiction:
The bank was a hybrid of conservative Swiss values and American risk-taking, which led to a clash of ideologies within the organization
The bank's leadership attracted a series of intense, incongruous individuals who whiplashed the bank in different directions, leaving behind a legacy of betrayal and scandal
The Swiss market was not large enough to sustain both Credit Suisse and its rival, UBS, leading to a constant struggle for dominance
This elegant theory nevertheless masks a messier truth. Credit Suisse wasn't destroyed by abstract trends, but it was made and unmade by distinctive and incongruous individuals in what could almost be described as a multi-decade relay race to maximize value extraction and scandal, with each runner taking what they could before passing the baton.
The irony of Credit Suisse's implosion is all the starker when contrasted with the legacy of its creator.
From the outset, Alfred Escher was a misfit with a chip on his shoulder that would stand out among the staid and buttoned up elites in Zurich. His father traveled the world and rebuilt the family fortune during the heyday of republican revolution in France and the US, exposing Alfred to these new ideas. Escher would go on to create the precursor bank to Credit Suisse, Schweizerische Kreditanstalt. The ultimate intent was certainly profit, as a capitalist free enterprise, but fundamentally he needed it to exist in order to support and finance his effort to modernize his country through investments in railway infrastructure.
Mavin lightly traces Credit Suisse's later troubles to Escher's dual character - New World risk taker and conservative Swiss banker. But this misses a crucial distinction. Escher took risks to build something lasting: railways, universities and institutions that could serve Switzerland for generations. The bank managers who followed him would take risks of a very different kind, as the story of Ernst Kuhrmeier illustrates.
Ernst Kuhrmeier managed a quiet CS branch in Chiasso, a small Swiss village just across the border from Italy. Kuhrmeier is famous for running an aggressive deposit raising spree among Italians fleeing rapacious tax drives from a sequence of unstable governments. He funded high savings rates with bizarre investments, like stakes in Piedmontese winemakers or Milanese salami manufacturers. When the Italian government offered a tax amnesty in 1976, the run on the bank left Credit Suisse with an $800m mark-to-market hole, $3.5bn today. The schemes had continued for years without lifting any eyebrows, likely largely on account of the substantial fees Kuhrmeier generated.
If Kuhrmeier's scandal represented individual greed at a local level, Rainier Gut would show how the same impulses could reshape the entire institution. Gut was an outsider investment banker who climbed the career ladder all the way from a trainee role. In 1971, CS recruited him to expand their foray into the industry as the board tried to navigate a strategic shift away from the sleepier business of private banking and into the exciting, high-risk world of corporate and transaction banking. With Board blessing to take ever greater risk, Gut led the bank into a joint venture with the U.S. investment bank First Boston. They would bind closer together after a series of eyewatering leveraged buyout losses at First Boston led to Credit Suisse essentially bailing it out through an acquisition (and briefly owning a mattress company in the process).
“In truth, the bank had become a monster, a high-octane global investment bank strapped onto a relatively small, secretive Swiss firm. It was an uneasy amalgam of two potentially explosive banking cultures that, over the remainder of its existence, just kept on blowing up.”
Gut would continue empire building in Switzerland, buying up Bank Leu, which had blown up for facilitating an insider trading scheme, and Swiss Volksbank, a large domestic retail bank. In 1996, he proposed to merge with UBS in a bid to consolidate Swiss banking, but a clumsy approach threw the deal off and UBS would wind up acquiring another competitor instead.
A common thread throughout the book is the lapse in internal controls that allow bad decisions to persist - either the short-term headline maximizing moves or outright insane corruption. What the organization really seemed to consistently select for were leaders with individual priorities and few scruples. The leadership of the bank became a revolving door of personalities with eager ambitions who were quick to be dismissed when things turned rough. At a certain point, one can only conclude that the responsibility lies with the Board for creating such an organization.
“Over and over, when the time came, the bank ditched its executives unceremoniously, no matter who they were. It made for whiplash-inducing changes of leadership and strategy. It also meant too many top executives just wanted to make their bonus quickly and didn’t care about building for the long term. The individual came first, the firm a distant second.”
By the time Tidjane Thiam took the helm, Credit Suisse had become a Frankenstein's monster of accumulated bad decisions. It feels like the end of the book, as we have spent the better part of 20 chapters escalating from one ridiculous scandal to another even more ridiculous crisis. Tidjane himself has to start his tenure with a few buried landmines, including fallout over the 2008 crisis, the insane tuna-bond bribing scandal in Mozambique, links to 1MDB and more. Only we then realize there are 10 more chapters of even more grotesque and bone-headed catastrophes waiting to happen.
Even Tidjane’s attempts at reform were eventually swallowed by the bank's scandal-prone culture, ending in a bizarre spying scandal that seemed to confirm every suspicion about the bank's ethical compass.
What makes Credit Suisse's story particularly damning is that this wasn't some unregulated frontier of finance - this was one of the world's most prestigious banks, operating under intense regulatory scrutiny. Yet it repeatedly found itself the accidental owner of random illiquid businesses after a bank run or losing billions of dollars in breathtakingly irresponsible trades, a pattern that would be almost comedic if it weren't so devastating to the institution's integrity and to the customers affected.
“All of these men led the bank through decades of overexpansion, expensive acquisitions, scandal after scandal. Many of them considered a merger with UBS on equal terms or better – a more favourable outcome than the end result – before calling it off. None of them fixed the bank’s broken business model and its discreditable culture. Who is to blame for Credit Suisse’s demise? The bank’s failure was a group effort.”
Credit Suisse's demise offers a stark lesson about institutional failure. It wasn't destroyed by the clash of Swiss and American banking cultures, nor by the inevitable pressures of global finance. Instead, it fell victim to a succession of leaders who treated a 167-year-old institution as their personal vehicle for wealth extraction. Each generation of management weakened the bank's immune system against misconduct, until scandal became not just frequent but inevitable.
By the end, Credit Suisse's collapse wasn't just predictable - it was the only possible conclusion to decades of privileging personal ambition over institutional integrity with no governance check in sight. The bank didn't die from external forces; it was hollowed out from within. The purpose of a system is what it does.
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