Bloomberg Audio Studios, podcasts, radio news. David, for anyone that questions my dedication to covering global finance for Bloomberg, I have a statistic for you.
I'm sure no one dares question that fancy, but hit me, what's a stat.
Since twenty fourteen, critis sweet c suite, mainly chief executives and chairman have given me thirty seven around thirty seven interviews, so we show up at every quarter to speak to them. We had many exclusives with various chief executives to trying to understand what was going on, and then boom, it got taken over.
I mean that's going to be some sort of record, hasn't it in terms of the number evinties. Also tells you a bit about the company, though, doesn't it. Because there was so much going on, so much to report on. I mean, you had to chase the chief executives, as the chief financial officers to try and explain or defend perhaps what was happening.
Probably defend. I mean there were a lot of scandals, and so we tried to keep on top of the story. And I remember sometimes in certain interviews I kept on thinking out the back of my mind this would be a great Netflix show, but it's a book.
Maybe it should be a Netflix show one day. I mean, it is truly one of the great stories of business,
of scandal, of failure. Over the last few years, we were all gripped by it here at Bloomberg, And in this week's episode of In the City, we're going to talk to perhaps the only person in the room here in London who's nerded out even more than New fran scene on Credit Swiss, and that is our very own Weekend Edition editor Duncan Mavin, whose book covers all the scandal's twist turns and the ultimate collapse of Credit Swiss. Welcome to the City of London, the City of the
City of the City of London. Mind the gap between the and the financial hearts of the country, the city, the City. Welcome to in the City, clear of the doors. I'm Francin Laqua and I'm David Merritt. Well with us in the.
Studio is Duncan Maven, Bloomberg editor and also best selling author of Meltdown, Scandal, Sleeze and the Collapse of Credit Sweez, which published earlier this year. Welcome Duncan, Thank you so Duncan you've joined Bloomberg. It's been six months. And before that, I mean you covered Credit sweez for years, decades.
Yeah. I was an editor and a reporter for a long time, covering banks in Europe and around the world, and Credits Sweets was prominently in the news, often for bad reasons. So I was all over them for a long time.
Yeah. So what prompted you to write this book.
I sort of got into it through one of the scandals, the Green Salt scandal. Had written a book about that, and that Credit Sweet was really at the heart of it. And actually I think that scandal was a really big factor in Credit sweet Is downfall, and so I sort of knew a lot about the culture and things that
went wrong there. And then when Credits Sweets collapsed, it was just this crazy story of scandal after scandal after scandal, relentlessly they were getting into trouble, and it felt like it kind of symbolized a lot of things that go wrong in banking, or can go wrong in banking.
Duncan Green Selle. It was you know, this also implicated the UK, maybe more than other scandals, but it was a big deal. Remind us what happened.
Yeah, So it gets a bit complicated. It's about this thing called supply chain finance, which we probably shouldn't get into because it's really arcane and difficult to talk about. But essentially Credit Sweet loan ten billion dollars of their client's money to have failed the UK financier named lex screen Cell, who was working with David Cameron, the former Prime Minister. So it blew up into a big kind of mainstream news story and all of the ten billion
dollars was frozen. Clients got some of it back, not all of it back, and it turned out a lot of the money was invested in kind of real garbage stuff. It was supposed to be really safe and it wasn't. So that was a real sign that they were entrusting their clients' money and things that weren't great, and that was a real sign things were not good at Credit SUITEZ.
Can we step back further in time, then, so the bank collapsed earlier on in twenty twenty three, but this succession of scandals that built up to its final implosion. Can we trace back to the origins Which of these scandals first emerged that showed that this bank was really in trouble?
So yeah, in my book, I go right back to the start one hundred and sixty seven years ago. And when you look at the start, even at the start, Alfred Esher, who's this Swiss kind of icon who founded the bank. Even his family has kind of involved in financial scandals. His grandfather loses a whole load of money in a trading scandal in the early nineties. It was sort of in the DNA from the start. It is
kind of in the DNA, yeah, you know. And I think Credit Sweets then becomes kind of the second biggest bank in Switzerland, and this a second tier investment bank when it merges with a US investment bank, and so it's kind of always pushing to try and be better. And I think that's one of the reasons that it kind of always is just pushing the envelope and getting into trouble. But then they have, you know, a lot
of scandals after that. So in the in the seven sixty seventies is one called the Kiaso affair, which involves money coming from Italy over the border and they kind of putting it in a branch and then use it in a kind of Ponzi scheme way, and that blows up, and then you know there's a There are more through
the nineties involving a group called the Flaming Ferraris. Here these traders in London who who blow up, and there's a bunch of scandals in Japan where they're they're shredding documents in Japan.
You mentioned the Flaming Ferraris. Can we I think we just kind of did a little sidetrack on that because it's wasn't it your local restaurant front scene nam Loong where you could do Did you ever have a flaming Ferrari?
I mean I can either confirm nor deny that I had flaming Ferraris in my youth. I thing most people have.
This is the cocktail that you drink that's on far right. Don Can you tell us what the Flaming Ferrari gang were?
So this was a group of high profile traders in London who in the late nineties, who were like the most celebrated in the city, and they used to go to this restaurant and drink this drink and they were on the front page of all the newspapers wearing their tuxedos and being really flashed and getting into Ferraris and so on, and driving around and and they were making more money than anybody else, and it turned out they were essentially inside of trading.
There would go flamed out love it.
I mean. The big one in the nineties for me, which kind of becomes a bit of a cliche, but I think is really worth talking about is how not just Credit Sweets but the Swiss banks in general, it's revealed how much they've been dealing with the Nazis and
during the war. I think this is partly in their DNA because there's this banking privacy law in Switzerland that our secrecy law that enables them to kind of take in money from the Nazis, but also prior to the Second World War, they've taken money from Jewish victims of Nazism around Europe and then they kind of they keep that money and right through to the nineties until some American investigators come and say, hey, you know, you've got
a bunch of money that was from Holocaust victims. Shouldn't you give it back? And Credits Sweets isn't the only one, but Crows Sweet is right at the forefront of trying to cover up what they've done during the war, So yeah, that scandal, and then you just kind of roll into the last twenty five years where it becomes really relentless. It's like a year after year after year there's a new scandal, like Credits sweets the d archae goos.
I mean, number of scandals goes back to the heart I guess of risk taking. Yeah right, but UBS also had skeletons in their closet in the like the eighties nineties. So why did YOUBS clean up and Critisweez kept on taking these big, risky bets.
Yeah.
I think it's a really good point, right. The Credit Suite definitely has a lot of scandals. It's not the only bank. You know, a lot of banks breach sanctions. Cit seez isn't even the worst on that. A lot of banks have big road traders. UBS has one of the worst. A lot of banks have scandals. The difference with Credit Sweez is that they're relentless, that they're year
after year after year after year. Most banks, some scandal happens, they try and tidy up, and UBS's case, I think in particular because of the financial crisis, they have this moment, you know, they take a government bailout and Credits Suite sort of proudly says it didn't take a government bailout, but ubs had to because of that, I think they get a chance to kind of restructure and wipe the slate clean.
When there's a big crisis or there's a big scandal, you have to go to the heart of why it was started. Is it because they didn't see it so o kags. They just didn't see it and they thought he was legit. Or is it because they turned to blind eye and said, well, it's worth it because returns are big. We need the money, we need to press shareholders, so we'll go ahead and do it. Anyway.
Yeah, I think it's a bit of both. So let's talk about the Mozambique Tuna bond scandal, which is they do a deal with some a Lebanese company that is building infrastructure from Mozambique, and they get a report done by an investigator into the most the Lebanese company to say should we do business with these guys? And the report comes back and it calls the Lebanese company the King of kickbacks. It talks about them, you know, always
taking bribes, offering bribes and credit sweet looks at it. It goes right through all their risk committees. They look at this report and they eventually say it's going to make a lot of money. Let's ignore the report, and they continue to do the business. And of course what happens. You know, the Lebanese guys offer two hundred million dollars in kickbacks to Mozambique officials and also to a credit sweet banker. In that case, I'd say it's because they
see the money and they just go for it. Then in the case of Archagots, I think it's slightly different. I think they do end up in a position at that point where so archae Goos is this big hedge fund, and they lend it too much money, and then when Archaegas collapses, they're too slow to get out. I think in that case it isn't so much that they are chasing the money because all of the banks are lending to Archagas. It's that their risk functions just aren't working very well at that point.
Someone listening to this he doesn't follow the difference between banks and different countries might think, hang on a minute, Swiss banks are supposed to be well. Switzerland are supposed to be safe, possibly a little boring secret as you mentioned as well, So it might be a bit of a surprise that actually the hotbed of scandal and excessive risk taking was sitting in this over a century year old Swiss institution. Is it connected to the secrecy part?
I mean, why under when you look under the hood of this Swiss institution, were they not adequately protecting themselves against risk?
Yeah. So I think there's a unique thing with Swiss in that it's half a Swiss bank and half a hard charging Wall Street City of London investment bank, and that is really unique. And those two things are constantly attention. They fight all the time over pay, really kind of in public that the Swiss approach to pay as well, they get really well paid, but don't talk about it. The American approach to payers. We want to talk about how well paid we are. And so there's two things
that are like constantly constantly fighting each other. But I think it is really worth looking at the Swiss piece in particular. So I think there was an element in Switzerland while all of this was unfolding of saying this was just the Americans. It was the Americans getting us in trouble and that's not true if you look at the Nazi stuff, that is nothing to do with the Americans.
That's purely Swiss. There are a couple of other scans, as one with a guy named Patrice Les Goodron who is a private banker deals with high net worths from Eastern Europe in particular and essentially steals money from a lot of very wealthy Eastern Europeans. And that happens in Switzerland, and I think part of it is that Swiss Secrecy Act, which, if you think about it, right, what does that attract.
Sometimes it attracts people who legitimately have a concern that you know, governments might come after their money on fairly. But it is also inevitable that that will attract dictators and organize crime and oligarchs and so on who also want to hide their money from authorities.
There was a pretty big turnover of chief executives right for I think in about ten years when you look at, you know, what was their role in risk taking? And again and I heard a lot from the leadership of Crety Sweets and saying, well, you know, you have a group of rainmakers or a group of traders in London and in New York that were not listening to the rules for a long time, but you're pushing back against that.
Yeah, so I think you're right to point to the turnover of chief executives. My view is that that's critical and the end of sweet. Part of what happens there is every new CEO is dealing with crises that often evolved under the previous CEO. So they land and the first thing that lands on their play is a scandal
from the last guy. So you can barely get going before you're dealing with some multi billion dollar scandal that has nothing to do with you, and then inevitably you set up a bunch of scandals for the next person to pick up. So I think that's really important. None of them really get to grips with that. I think because they're kind of second tier, both in Switzerland and on Wall Street, they're kind of second tier. They're not quite the best, and so they're willing to kind of
turn a blind eye a little bit. They get and I think they all get upset. All the CEOs and chairmen are upset about the culture of pushing things, but they all inevitably accept it because that's the only way to generate profits. What happens at the end And make
this point in my book. You know you said four in the last ten years or so, Actually in the end they when it comes right to the anacots sweet They've got a new CEO, a new chairman, a new chief risk officer, and new chief of the investment, a new head of communications, and your chief legal counsel. Everybody's been there for about six to twelve months, and so when they kind of hit with a big crisis right at the end, there's really nobody there who's got any
institutional knowledge of how to deal with it. And I think on top of that, the Swiss authorities look at them and say, well, what do you guys know, you've hardly been here. It's time to close the bank down.
Can you take us back then to those few days there's very dramatic days in twenty twenty three when all these things came to a head. So you've got this inexperienced team running the shop. You've got losses coming through from the scandals that you mentioned. How did it actually transpire that this bank effectively vanished in the space of a few days.
So you have to start really a few months before that. So a few months before that, if you remember, this was kind of a big deal at a time, there was a tweet by an Australian journalist who doesn't really cover global investment banks or anything like that, and he tweeted out words to the effect of credible tells me big global bank on the brink, and that was it
didn't mention from Australia. And he tweets out this thing, which seems pretty innocuous on the surface, but for some reason people decide that that is Credit Sweet, and I think that some reason is because it's had all these scandals. What then happens is this kind of escalates on social media and you get this kind of crazy scene where, especially in Asia, people are tweeting it out with charts and things that show that it really is Credit Sweet.
The tweet gets taken down, by the way, but in the meantime, about one hundred billion dollars has been pulled out of Credit Sweets in a matter of a few days, so the bank is seriously weakened. And at that point, so this is a few months before it collapses, they
really really thought it was going to collapse. In fact, the communications team had already written in October twenty twenty two, they had written the press release for the end of Credit Sweet, because that's how it run is happening on the bank gets to run on aut of a global digital run is sparked by that tweet exactly.
But it took a long time for the communications team to actually put anything out.
Yeah, it was almost silent. I think this was partly the new CEO and new chairman, who were sort of rabbits in the headlights, didn't know what to do. Fortunately for them at the time, or at least they think it's fortunate they managed to kind of slow this down. Panic kind of subsides for a little while, and then you get into twenty twenty three and pretty fragile. The state of the bank's quite fragile, and there's a bunch
of other little scandals kind of erupting around it. And then you get the Silken Valley Bank thing in the US, which kind of creates more fragility in the whole system. And I think it's hard to recall now, but at that time, it really felt like there was a potential
for another global financial crisis. You know, there were two or three banks teetering in the US and In fact, what you get is kind of yelling and Karen Kellisuta, who's the Swiss finance minister, and you know, finance ministers around the world kind of communicating to say, we need to stop this right now. And so Cali Suita in Switzerland. She was also new right she'd only got into her spot in the January I think. She looks around the room, woman says, how am I going to stop sweet's blowing
up Switzerland and potentially the world's financial system. She looks at the CEO and chairman says, do I trust these guys to fix it?
Maybe not, but don't get it so I remember, you know, And it took about two months to actually convince the leadership to come on after that October twenty twenty three because outflows were, you know, pouring out. And then we finally get to the chairman in December. He comes to London, speaks to us for fifteen minutes and he says, look, things are slowly getting better. Yeah, so they have a bit of a respite. So at that point, what's what's the concern? Is it liquidity?
Is the run continuing?
Yes, it's outflows. It's basically people are saying we're getting out, we're getting out, we're getting well.
That's doing is you know, that means their profitability is getting worse and worse. Right, if the money is coming out, that's fees disappearing. So the profitability problem they had before is now significantly worse.
But there's no solvency concerns and there's no liquidity concern And I think that's important because then there was something happening three months afterwards where people were in a panic, but just wasn't there on the.
Yeah, the problem it had and the reason that my book is focused on all the scandals is the problem it had was its reputation was ruined. It's did people trust the bank? And the problem with the bank is, you know, if people don't trust it, it's finished. If nobody wants to put their money there, you don't have a bank anymore. And so that really is what happens I think over that few months. I mean they also
mess up all the time. So the chairman said at that time, around that time, we've seen money flowing back into the bank, which wasn't true. That was a lot well he said he made a mistake or he misspoke as something he was under real serious pressure whether he
said something that was absolutely wrong and illegal. Days before they collapse, actually the SEC told them they couldn't publish their annual annual report because it had errors in it, which in and of itself, had they not collapsed, would have been another enormous.
Scandal to what was the final The final straw.
The final straw, I think really was what was happening in the US, and that there was a sense that this cannot go any further. I think this swisk government, Swiss authorities were worried that it was starting to affect Switzerland and maybe it would affect ubs. Two, that there's so much money coming out of credits Swiss that it was starting to damage the frank and it could start to do so.
It was moving the Swiss currency. It was being damaged by the amount of money being pulled out of the bank.
In the previous October with the Twitter thing, that'd mostly be money in Asia and they could kind of handle it. I mean, it was a disaster, but it was much worse when the following February March, Swiss people started to put their money out and move it oversea, move it outside of Switzerland, and so that gave them a real problem.
And as I say, I think you know the Finance Minister knew in her spot with Janet Yellen on the phone saying this needs to end right now, is kind of looking around and saying how do I solve this?
But why was the US involved? I mean, this is after so basically you seemed to suggest sunk and that they never really had a chance. But it definitely came to a head with an interview that we did in the Middle East with the Saudi National Bank where they had around ten percent of credits and where he says, look, he wouldn't buy any more shares. And so that's when that was kind.
Of the point, just like no way or.
Is that when Yellen gets involved.
It was all around the same time. So within sort of a period of about seventy two hours, you've got their accounts. They're not allowed to publish your accounts because the SEC says have got a problem. They've got Silken Valley Bank and others collapsing in the US and a
concern of a broader global financial crisis. You've got the Saudi National Bank chairman saying we're not going to put any more money in, which also got misread by many people as because it was SNB, the Swiss National Bank, so that kind of literally, you know, it sounds crazy, but it definitely confused some investors. SNB so as we're not putting any money into Swiss is much worse than Saudi National Bank. So yeah, all these things happening right there.
And I think the sense if well, if you speak to the people at the top of crot Swie at that time, some of them will still say that there's no need for the bank to collapse. We had a plan, we would solve this, it would have all been okay. I think that's you know, possible. But if you're the Swiss authorities and you're looking at that bank at that point and there's a potential financial crisis, you I don't
know if you trust those people to fix it. And so I think you look at UBS and you go, actually, you guys, take it. Can you solve it? If you take it at all? This all ends right now, and so I think that's kind of a logic. Gar you know, time will tell whether it was a good decision, and the implications for UBS, I think are huge, but I think it's understandable why you would do that if you're the Swiss southority.
So when it becomes clear so that the Swiss government are panicking or worried at least the currency is starting to move on this, so they swoop in and tell UBS, effectively, you've got to buy this failure bank. Did they want to do it?
I think for UBS it's a massive opportunity, right to pick up a pick up their big rival for next to nothing. Essentially in banking terms, it's next to nothing. In the end, they pay about three billion dollars and get a whole load of indemnities to protect them from the kind of what could happen because of all the scandals that are still lingering. But they get the bank for essentially a song. And you see that in their first set of results after the crisis.
The deal of a century.
Yeah, right, amazing.
What did you learn about you know, the financial system in the book? I mean as a secret that you have to have that drawer with a template of if a competitor goes back and you know, will take you under it, you have to have a plan or.
I think the thing that I found most interesting is the tolerance for bad behavior that this massive global bank could go on forever and ever, you know, at least till for one hundred and sixty seven years without collapsing. It is incredible considering how many times they were in trouble and so actually I sort of started out with the question of how does a big global bank like this collapse? And at some point I was kind of asking myself, why didn't this bank collapse earlier? It's sort
of the other way around. Why did it not go Elliott? Somebody should have shut it down twenty or thirty years ago.
Duck, Thank you fantastic, Thanks so much time. It was really good.
It was so good.
Thanks for listening to this week's In the City from Bloomberg. It was hosted by me Francin Laqua and David Merritt. It was produced by Sersati, production support from Moses and Dam and sound designed by Blake Maples. Special thanks Tom Duncan Maven. Please subscribe, rate, and review wherever you listen to podcasts.