Credit Suisse survived two world wars. It can probably endure a reputational hit

The brief respite should be used to overhaul both the management and ownership of the scandal-prone Swiss bank.

If Credit Suisse were not a global systemically important bank but something less exalted like, say, an automobile long past its prime, its track record of frequent, expensive repairs would have warranted its junking long ago. But the bank is too big to fail and needs to be salvaged, even if Iranian-American economist Nouriel Roubini, popularly known as Dr Doom, describes it as “too big to be saved”.

Many of Credit Suisse’s peers on the Systemically Important List, it should be remembered, were bailed out with government funds during the global financial crisis. With the ability to create money at will, central banks do not understand the meaning of “too big to save”.

But the problem would seem to be one of the company’s culture – one that invites legal action and penalties time and again. The Guardian has compiled a list of Credit Suisse scandals, starting with helping the late, unlamented Ferdinand and Imelda Marcos launder the money they stole from the Philippines, to a fraudulent Mozambique tuna bonds scheme. Credit Suisse arranged loans worth $1.3 billion for the government of Mozambique for financing, among other things, a state sponsored fishery, with a part of the money being kicked back, allegedly, to some Credit Suisse bankers.

From Archegos, a hedge fund with dodgy financing from Credit Suisse that went belly up, to Greensill, a securitisation scheme for trade receivables that overreached, where there was a scandal, Credit Suisse was at the scene.

Depositors withdrew their funds en masse after share prices started tumbling in October 2022 after a long, slow decline.

The latest crunch came after Credit Suisse reported losses amid worries about the effect of a year of interest rate rises on the value of the bonds in its portfolio, and its largest shareholder’s disinclination to invest more in the bank.

Helping clients launder money and avoid tax are repeat offences for which Credit Suisse has paid huge penalties. This could be construed as a strength, though not quite a virtue. It takes its private banking business – which manages $1.4 trillion of assets – very seriously, and its bankers would, apparently, not balk at bending – if not breaking – the law to meet their requirements.

If its largest shareholder Saudi National Bank or some other acquirer is inclined to take control of the bank to leverage its revealed commitment to client needs, it should be allowed to. (It’s easy to picture colourful ads, each proclaiming the bank’s commitment to fulfilling clients’ requirements, with the tagline ‘no holds barred’). The Saudi National Bank’s explanation for why it is not stepping in with more equity to support the troubled bank is that it did not want to be subjected to all kinds of new rules that would kick in if its stake crossed 10%.

Considering that distributed ownership, in which every shareholder has less than a 10% stake, has not exactly helped ensure exemplary conduct by the bank’s executives, it might be worth trying a more concentrated ownership structure with some shareholders being allowed to own more than 10%. of the bank.

What the bank needs is a cultural change, and culture is driven from the top. The entire top management of the bank – not just the chairman and the CEO – should be replaced with professionals with an exemplary track record. This new management must be supervised by a board that takes its job a lot more seriously than what has been on display so far.

Credit Suisse was founded in 1856. It has survived the revolutions of the 19th century, the world wars of the 20th, the rise and fall of empires and colonies, and thrived amid profound economic and geopolitical shifts. It can probably outlive some irresponsible employees who were allowed to damage its reputation. If changing regulatory norms is the price for this, it’s well worth paying, especially if salvaging Credit Suisse would halt the battering of other banks’ shares.