Credit Suisse Essay

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The Credit Suisse Group is a Zurich-based  financial services corporation offering investment banking, private banking, and asset management  through  its three  divisions. The Credit  Suisse Shared  Services division  provides  services  in  support  of the  other three divisions, principally legal and IT service.

Alfred Escher (1819–82) founded the company, then called Schweizerische Kreditanstalt, in 1856. An adept politician from Zurich, Escher had made a nationwide name for himself with his support  of railways as the solution  to Switzerland’s malaise following the  brief civil war of the 1840s, a solution  that  would end the country’s economic  and geographic isolation. In particular, Escher was instrumental in keeping the railroads in the private sector—benefiting  Zurich,  since state-supported railroads would centralize the industry and its earnings in Bern, the capital of the new federal government  (established  in 1848). While  continuing his political service, Escher also acted as the Managing Director  of the Northeastern Railway Company, and founded the Kreditanstalt  to finance transalpine  railway lines. He helped develop Swiss Life, now Switzerland’s largest insurance company, the following year.

Three  million  francs  of Kreditanstalt  stock  were issued, valued at over 200 million francs within days. The Swiss Confederation, at risk of falling behind western Europe and its Industrial  Revolution, was hungry for  industrialization and  the  railways helped  make that  possible while the  Kreditanstalt  helped  finance it—and helped  Zurich  become  and  remain  Switzerland’s financial center. As Switzerland industrialized, it entered—until World War I—a golden age that helped it become the banking capital of the world. The first foreign office of Credit Suisse was opened in 1870 (in New York City), and by the end of the 19th century the company had become the principal player in the Swiss underwriting  business. Branch offices outside of Zurich began opening in 1905 (the first in Basel), and its underwriting business expanded overseas.

The impact of the Great Depression increased tensions and  nationalist  sentiment  across Europe,  and Credit Suisse looked overseas for safer sources of capital. The Swiss American Corporation was founded in 1939 in New York City, as a subsidiary of Credit Suisse’s underwriting business and investment consultancy. Years later, it would be discovered that during the war years, Credit  Suisse was one of several banks guilty of improper  dealings with Nazi Germany, and mishandling  of the “dormant accounts  issue” (accounts opened before the end of the war by account holders who became victims of the Holocaust). Like the other banks, Credit Suisse eventually settled by paying money into a pool for reparations  as well as to establish a humanitarian fund. In 1964 Credit Suisse was granted a license as a full-service bank in the United States, and in 1982 the bank became the first Swiss bank with a listing on the New York Stock Exchange (via its subsidiary Swiss American Securities).

The American bank First Boston was taken over by Credit  Suisse in 1990, becoming  Credit  Suisse First Boston—now  the  bank’s  investment   banking  division. The acquisition  came in fits and starts. Credit Suisse First Boston had been the name of a joint CS/ FB venture in 1978, and unhappiness  with the terms of the  venture  along  with  an  unsuccessful  stretch of a few years led to the departure  of several CSFB executives, some of them  leaving for Merrill Lynch.

Credit Suisse’s acquisition  of First Boston, folding it into CSFB, was part of its response to the change in investment banking in the 80s as Goldman Sachs and Salomon  Brothers  began  to  compete  with  them  in the Eurobond market, along with the perception  that CSFB and Credit Suisse were in competition  with one another  for certain  services. The 1987 stock market crash and mid-1980s  allegations that  the bank participated in laundering eastern European drug money had  hit  Credit  Suisse hard,  while First Boston  suffered from bad loans made for mergers and acquisitions. The acquisition and restructuring was meant to strengthen and redefine both companies.

The  1990s saw more  acquisitions  and  alliances, and the array of banks and services were reorganized in 2002 as the Credit Suisse Group. Several restructurings followed in rapid succession as the company maneuvered  to recover from the record losses it had posted  in 2002. The current  form of the bank, with its three main divisions and shared services division, originated in 2006, in commemoration of the original bank’s 150th anniversary. Credit  Suisse First Boston provides debt and equity underwriting, securities services, and mergers and acquisitions management. The group is the second largest financial services firm in Switzerland, behind UBS, and operates in 60 countries, with over 200 retail branches in its homeland.

Bibliography:    

  1. Edmund Andrews,  “When  the  SureFooted Stumble: Swiss Banks Stagger After Several Investing Missteps,” New York Times  (October  23, 1998);
  2. Paul Beckett, “Credit Suisse and UBS Agree to Open 1 Million Holocaust-Era Accounts,” Wall Street Journal (May 4, 2000);
  3. Dieter  Fahrni, An  Outline  History of Switzerland: From The Origins To The Present Day (Pro Helvetia, 2003);
  4. David Fairlamb, “On the Edge: Will a Radical New Strategy Save the Day for Credit Suisse’s CEO?,” BusinessWeek (July 15, 2002);
  5. Joseph Jung, From Schweizerische Kreditanstalt to Credit Suisse Group: The History of a Bank, trans. by James Knight (Neue Zürcher  Zeitung, 2000);
  6. Ian Rodger, “The Enfant Terrible of Swiss Banking,” Financial Times (January 9, 1993).

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