Private View Blog: Credit Suisse ‘Spygate’ defines Swiss industry challenges
Most coverage of Credit Suisse’s ‘Spygate’ saga has focused on the interactions of a handful of personalities, with scant analysis of the Swiss private banking ecosystem and how it still breeds a cloak-and-dagger operating norm, which is no longer fit for purpose.
Many details have already emerged. The charismatic young head of the bank’s wealth management arm, Karachi-born Iqbal Khan, left for bitter rival UBS, following clashes over building work and lakefront views with his neighbour and boss, Tidjane Thiam, highly-regarded Ivorian CEO of Credit Suisse.
After handing in his notice, Mr Khan exposed a corporate espionage firm which was tailing him. One of the private detectives committed suicide. The bank was also caught spying on another former senior executive and Mr Thiam was eventually ousted, even though cleared of any involvement, to be replaced by Thomas Gottstein, who ran the bank’s domestic Swiss business.
While Swiss banks have done their best in communicating to both clients and shareholders that they have transformed themselves from shadowy deposit takers for dictators and money launderers to transparent portfolio managers for entrepreneurs, they maintain a clandestine culture.
This secrecy and its legacy, which still thrives in Geneva and Zurich, makes possible the extreme shenanigans which lead to reputational damage and the expulsion of senior leadership talent such as Mr Thiam.
“Tailing is something that used to be quite common in the Swiss private banking world, maybe less so now,” states Shelby du Pasquier, head of the financial services practice at Geneva lawyers Lenz & Staehelin.
“This has generally the purpose of ensuring that top executives would not take advantage of their ‘garden leave’ to start poaching clients of the institution they were leaving.”
Another insider confirms the spying and tailing incidents are “simply an issue of a limited talent pool and the revolving doors around the Swiss banking market,” where “allegiances are made and the behaviour now witnessed is typical of those.”
Typical behaviour
“Credit Suisse’s behaviour is absolutely typical of Swiss private banking culture,” confirms Simeon Fowler, CEO of wealth management headhunters Fowler Fox. Others agree that this culture is a “broader issue” for Swiss banking as a whole.
“The fact that Credit Suisse would have decided to have its star banker – who was going to its arch competitor – followed, did not strike me as incongruous,” says Mr du Pasquier. “In fact, one could argue that this was dictated by the wish to protect the institution and shareholders’ interests.”
This notion of private banking having its own peculiar set of rules is confirmed by many across the industry. “The bank is well run and has high calibre executives,” says a former senior manager, at the same time admitting the spying scandal showed that internal procedures must be tightened.
Mr Thiam was credited with turning the bank round, improving investment banking results, achieving steady performance from wealth management and hitting the best profits in more than nine years.
Yet overall wealth management inflows of SFr23bn ($23.4bn) across Credit Suisse were well below analysts’ expectations of SFr28.7bn for last year. Other board members remained unconvinced about Mr Thiam and felt he was too high risk.
These are tough times for private banks, challenged by high staff and office space costs. “Like many of the private banks, Credit Suisse is in full cost-cutting mode and lay-offs and rumours of lay-offs abound,” says Kim Cornwall, a staff trainer and former senior banker who knows the Zurich house well.
Swiss private banks are entering a phase where any sense of flamboyance will be dampened, where bankers will be expected to keep their heads down. This is confirmed by the type of leader chosen to replace Mr Thiam.
“The new CEO is a Credit Suisse lifer and very much of the old school,” says Mr Cornwall. “He is very conservative and no risk-taker. It is back to basics.”
While the bank strives to minimise reputational risk, rivals are clearly thriving on describing a chaotic, out-of-control culture.
“Our clients are pretty upset at seeing all these larger than life characters running amok like kids, all of it in the public domain,” says a senior banker at a US rival.
“The stock price is now lower than when Tidjane took over seven years ago. This is driven by the fundamental fact that European banks have not restructured and are going about their business in the same old way, whereas American banks restructured 10 years ago.”
Yuri Bender is editor-in-chief of Professional Wealth Management. Follow him on Twitter @YuriBender
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