CRIMINAL CAPITALI$M
Credit Suisse’s Demise Blamed in Bondholder Suit on NY Bankers
Joel Rosenblatt
Wed, June 21, 2023
(Bloomberg) -- A group of Credit Suisse Group AG’s European bondholders who were part of the $17 billion wipe-out in the bank’s demise sued its former executives, pointing to a “broken culture” and a series of scandals they trace to its New York-based investment banking operation.
Bondholders based in Paris, Luxembourg, and St. Peter Port, Guernsey argue that self-serving executives chased short-term returns and bonuses from overly risky deals, resorting to unethical and illegal practices to acquire and keep high-revenue customers.
The suit filed late Tuesday in Brooklyn, New York names several Americans as defendants, including Brady W. Dougan, who served as chief executive officer from 2007 to 2015; Eric Varvel, who served as head of Credit Suisse’s investment banking division for several years; investment banking head James L. Amine; and Timothy P. O’Hara, who co-headed investment banking before becoming head of global markets. The class-action complaint was brought on behalf of holders of Credit Suisse Additional Tier 1 Capital, or AT1, bonds from Jan. 12 to March 19, 2023.
Citing a 2021 report commissioned by Credit Suisse and published by law firm Paul, Weiss, Rifkind, Wharton & Garrison, the bondholders say the bank “was fatally plagued by incompetence and grift, and the senior leadership was incapable or unwilling to overhaul the corrupt foundation.” They claim the corruption started in New York.
“While Credit Suisse began as a conservative Swiss private bank, the vast majority of the people who were responsible for its demise were not staid Swiss bankers, but, rather, sharp-elbowed New York investment bankers,” according to the complaint.
Read More: How Scandal and Mistrust Ended Credit Suisse’s 166-Year Run
The lawsuit pins much of the blame for a culture that “valued short-term gain over long-term trust” on Dougan and fellow alumni of Credit Suisse First Boston who were his proteges when he took over as CEO.
Europeans are also named as defendants, including former CEO Tidjane Thiam, who according to the complaint lives in New York but is a French and Ivorian citizen. He replaced Dougan in 2015 and remained CEO until 2020. Ultimately Thiam failed to “roll back the influence of the US-focused investment banking” and overcome the bank’s culture, according to the complaint.
UBS Group AG agreed to take over Credit Suisse in an emergency government-backed deal in March, after the bank was hit by mounting client withdrawals.
In the six weeks after the rescue was rushed through, at least 120 claims were filed against the Swiss banking watchdog’s decision to wipe out the high-risk AT1 bonds as part of the deal.
A UBS spokeswoman didn’t immediately respond to an email outside regular business hours seeking comment on the suit. Representatives of Exos Financial, which Dougan founded in 2015, also didn’t immediately respond outside regular business hours to an email seeking comment.
The case is Star Colbert v. Dougan, 23-cv-04582, US District Court, Eastern District of New York (Brooklyn).
Joel Rosenblatt
Wed, June 21, 2023
(Bloomberg) -- A group of Credit Suisse Group AG’s European bondholders who were part of the $17 billion wipe-out in the bank’s demise sued its former executives, pointing to a “broken culture” and a series of scandals they trace to its New York-based investment banking operation.
Bondholders based in Paris, Luxembourg, and St. Peter Port, Guernsey argue that self-serving executives chased short-term returns and bonuses from overly risky deals, resorting to unethical and illegal practices to acquire and keep high-revenue customers.
The suit filed late Tuesday in Brooklyn, New York names several Americans as defendants, including Brady W. Dougan, who served as chief executive officer from 2007 to 2015; Eric Varvel, who served as head of Credit Suisse’s investment banking division for several years; investment banking head James L. Amine; and Timothy P. O’Hara, who co-headed investment banking before becoming head of global markets. The class-action complaint was brought on behalf of holders of Credit Suisse Additional Tier 1 Capital, or AT1, bonds from Jan. 12 to March 19, 2023.
Citing a 2021 report commissioned by Credit Suisse and published by law firm Paul, Weiss, Rifkind, Wharton & Garrison, the bondholders say the bank “was fatally plagued by incompetence and grift, and the senior leadership was incapable or unwilling to overhaul the corrupt foundation.” They claim the corruption started in New York.
“While Credit Suisse began as a conservative Swiss private bank, the vast majority of the people who were responsible for its demise were not staid Swiss bankers, but, rather, sharp-elbowed New York investment bankers,” according to the complaint.
Read More: How Scandal and Mistrust Ended Credit Suisse’s 166-Year Run
The lawsuit pins much of the blame for a culture that “valued short-term gain over long-term trust” on Dougan and fellow alumni of Credit Suisse First Boston who were his proteges when he took over as CEO.
Europeans are also named as defendants, including former CEO Tidjane Thiam, who according to the complaint lives in New York but is a French and Ivorian citizen. He replaced Dougan in 2015 and remained CEO until 2020. Ultimately Thiam failed to “roll back the influence of the US-focused investment banking” and overcome the bank’s culture, according to the complaint.
UBS Group AG agreed to take over Credit Suisse in an emergency government-backed deal in March, after the bank was hit by mounting client withdrawals.
In the six weeks after the rescue was rushed through, at least 120 claims were filed against the Swiss banking watchdog’s decision to wipe out the high-risk AT1 bonds as part of the deal.
A UBS spokeswoman didn’t immediately respond to an email outside regular business hours seeking comment on the suit. Representatives of Exos Financial, which Dougan founded in 2015, also didn’t immediately respond outside regular business hours to an email seeking comment.
The case is Star Colbert v. Dougan, 23-cv-04582, US District Court, Eastern District of New York (Brooklyn).
Myriam Balezou and Patrick Winters
Tue, June 20, 2023
(Bloomberg) -- UBS Group AG faces hundreds of millions of dollars in regulatory fines over Credit Suisse Group AG’s dealings with Archegos Capital, as the Swiss bank inherits its former rival’s entire litigation portfolio, according to a person familiar with the matter.
The US Federal Reserve’s fine over Archegos may be as high as $300 million, while the UK’s Prudential Regulation Authority could impose a penalty of up to £100 million ($128 million), the person said. Switzerland’s financial regulator doesn’t have the authority to impose fines.
UBS’s acquisition of its stricken rival closed earlier this month, handing Chief Executive Officer Sergio Ermotti a potential windfall gain this quarter in the tens of billions of dollars after the government-brokered rescue. At the same time, UBS has previously guided that legal liabilities related to Credit Suisse could run to as much as $4 billion over 12 months, and asset mark-downs could come in at some $13 billion.
Unlike other banks working with the family office that managed Bill Hwang’s fortune, Credit Suisse was slow to unwind its positions and ended up with a $5.5 billion losses related to that business in 2021. UBS suffered a much smaller loss.
UBS erased earlier gains to trade down 1.4% at 18.25 Swiss francs ($20.343) as of 11:12 a.m. in Zurich. The shares have gained 7.5% this year.
The bank had asked Finma, the Fed and the PRA to publish their findings and announce any penalties jointly at the end of next month, according to the Financial Times, which first reported that UBS would face some penalties.
UBS declined to comment. Finma wasn’t immediately available for comment. PRA didn’t respond to a request for comment.
UBS has inherited a long list of unresolved cases following the completion of its emergency takeover of Credit Suisse. They span a criminal conviction for facilitating a Bulgarian cocaine trafficker’s money laundering to a half-billion dollar settlement in a bribery scandal related to a tuna fishing fleet in Mozambique.
What Bloomberg Intelligence Says
UBS’s $4 billion in additional legal provisions, when it completed its purchase of Credit Suisse on June 12, may cover much, if not all, of the potential fines related to the latter’s Archegos issues. A Financial Times June 19 report is consistent with our thesis that such regulatory penalties would be less than $1 billion.
Alison Williams, Bloomberg Intelligence
Ermotti has signaled that Credit Suisse’s investment banking unit, which was at the center of the Archegos debacle, is in for a “massive downsizing” as part of the integration into UBS.
--With assistance from Hugo Miller and William Shaw.
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