Credit Suisse leak raises painful questions for bank | Banking

Credit Suisse had a message for investors in its recent earnings call. The bank was planning to change course after a tumultuous 12 months during which it was involved in the collapse of US hedge fund Archegos and supply chain finance firm Greensill Capital.

“It’s not going to be a silver bullet, and we expect 2022 to be a year of transition,” Chief Executive Thomas Gottstein said in a Feb. 10 conference call. “But we have made good progress in creating the conditions for a much more stable and predictable bank.”

More “predictable,” in banking parlance, was code for reining in its riskier investment bank – which offers trading, fundraising and business advisory services – and turning to a more stable source of income. : wealth management.

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What is the leak of Swiss secrets?

Suisse secrets is a worldwide journalistic investigation into a data leak from the Swiss bank Credit Suisse. It includes more than 18,000 bank accounts that were leaked to Süddeutsche Zeitung by a whistleblower who said Swiss bank secrecy laws were “immoral”. The data, which represents only a portion of the bank’s 1.5 million private banking clients, is linked to more than 30,000 Credit Suisse clients. The leak includes personal, shared and corporate bank accounts – holding an average of 7.5 million Swiss francs (CHF). Nearly 200 accounts in the data are worth more than CHF 100 million, and more than a dozen are valued in the billions. While some accounts in the data were open as early as the 1940s, more than two-thirds have been opened since 2000. Many of them were still open in the past decade, and some remain open today.

The Guardian was among more than 48 media partners around the world, including journalists from Le Monde, NDR, the Miami Herald and the New York Times. They spent months using the data to investigate the bank, in a project coordinated by Süddeutsche Zeitung and the Organized Crime and Corruption Reporting Project (OCCRP). They uncovered evidence that Credit Suisse accounts had been used by clients involved in torture, drug trafficking, money laundering, bribery and other serious crimes, suggesting widespread breaches of due diligence form the bank. It is not illegal to have a Swiss account and the leak also contained data from legitimate customers who had done nothing wrong. In its response, Credit Suisse said it “strongly rejects the allegations and inferences regarding the bank’s alleged business practices.”

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Yet this pillar of Credit Suisse’s business – cultivating wealthy clients for a range of banking services – is precisely what has come to light in the Project Suisse Secrets revelations.

A massive leak revealed that Credit Suisse harbored the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes. The revelations point to apparently widespread lapses in due diligence on the part of the lender, despite repeated promises to weed out dodgy customers and eliminate illicit funds.

In response, Credit Suisse said it was unable to comment on specific clients, but “strongly rejects allegations and inferences regarding the bank’s alleged business practices”, which it said were “based partial and selective information taken out of context, leading to biased interpretations”. of the conduct of the business of the bank.

However, the simultaneous disclosures from 48 outlets raised painful questions for the bank. For anyone who has followed the series of scandals in recent years, they will have a familiar ringtone.

Axel Lehmann, new president of the bank. Photography: Bloomberg/Getty Images

Has Credit Suisse had a high tolerance for risky clients? Has it done enough to strengthen internal due diligence controls? Was there a culture in which bankers held their noses and closed their eyes when taking or keeping money from questionable clients, especially officials who might have been involved in corruption? Has profit taken precedence over ethics?

In its response to the media, the bank says these are historical issues for a tiny fraction of its customers. It says it has kept pace with banking regulation across the industry, putting in place a strict zero-tolerance policy for tax evasion and strict control measures to combat money laundering.

Yet Credit Suisse has spent decades apologizing for past horrors, only to have more skeletons come out of its closets.

Its newly installed chairman, Axel Lehmann, hopes the leak of Swiss secrets will be just another public relations crisis for the bank, and there are plenty of those. Over the past six months, the lender has admitted to defrauding investors in connection with the historic ‘tuna bond’ lending scandal in Mozambique and Lehmann’s immediate predecessor, António Horta-Osório, resigned for violating the Covid regulations.

But the revelations also threaten to put a damper on the work of an aggressive restructuring plan that relies on extracting more money from its wealth management division.

Credit Suisse is one of the largest wealth managers in the world, managing more than 1.6 billion Swiss francs (CHF) (£1.3 billion) for its clients. With plans to divert 3bn Swiss francs (£2.4bn) of resources from investment banking to the division’s wealth management by 2024, and hire at least 500 relationship managers to find and serve high net worth clients, the overhaul was seen by analysts as a sensible response to recent issues involving complex investment products and its services to hedge funds.

Part of the bank’s growth strategy will be to woo clients from emerging markets, where the risk of corruption is higher.

Credit Suisse has struggled in recent years to keep bosses in place long enough to see through meaningful change. But if Gottstein and Lehmann are to regain the trust of markets and regulators, they will have to prove their aversion to dodgy customers, no matter how lucrative their accounts.

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