[News Inside Companies] 'Talent Exodus' at Credit Suisse... Why It Is Caught in Crisis Rumors

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[Asia Economy Reporter Heo Midam] Credit Suisse (CS), the Swiss global investment bank recently embroiled in crisis rumors, is facing additional setbacks. Amid concerns over financial soundness, it has come under investigation by the U.S. Department of Justice for tax evasion allegations. Some raise the possibility of CS’s bankruptcy, expressing fears that the 'Lehman Brothers incident'?which triggered the 2008 global financial crisis?might be replayed.

CS Hit by Continuous Setbacks... U.S. Authorities Investigate Tax Evasion Allegations

On the 11th (local time), Bloomberg reported that the U.S. Department of Justice is investigating whether CS helped South American nationals conceal assets in U.S. accounts. Previously, CS admitted to assisting U.S. clients in tax evasion through offshore secret accounts in 2014 and paid approximately $2.6 billion (about 3.7 trillion KRW) in fines to U.S. authorities.

The U.S. Senate Finance Committee is also investigating CS on similar charges alongside the Department of Justice and is expected to release a related report soon.

However, CS has completely denied the tax evasion allegations. CS stated, "Since 2014, we have been closing unreported accounts whenever identified to eradicate individuals attempting to conceal assets from tax authorities."

CS, which suffered massive losses last year due to the collapses of the UK financial firm Greensill Capital and the U.S. hedge fund Archegos Capital Management, now faces another crisis with this investigation.

CS invested in Greensill, which went bankrupt last year, and Archegos, run by Korean-American investor Bill Hwang, incurring astronomical losses. Particularly, when Archegos failed to meet margin calls and went bankrupt, CS suffered losses of about $5.5 billion (approximately 7.84 trillion KRW), the largest loss since the company’s founding in 1856.

As a result of the incident, Lara Warner, Chief Risk Officer (CRO), and Brian Chin, Head of Investment Banking (IB), resigned immediately. Although several banks had Archegos as a client, CS incurred the largest losses.

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Accelerating Talent Exodus... Some Urge Caution Saying "Fear Is Overblown"

As crisis rumors intensify, CS is experiencing a steady outflow of internal personnel. According to recent Bloomberg reports, CS employees in the Asia region have been leaving the company one after another. The deputy head of Asia Asset Management recently resigned, and the deputy head of Asia-Pacific Mergers & Acquisitions (M&A) moved to the European IB firm HSBC.

Earlier, international credit rating agency Moody’s downgraded CS’s credit outlook to 'negative' in August. Additionally, the credit default swap (CDS) rate reflecting CS’s default risk surged past 5% at the start of trading on the 3rd, reaching an all-time high. Consequently, rumors circulated on social media platforms like Twitter that CS was on the brink of bankruptcy.

However, some voices urge caution, saying the fear surrounding CS is exaggerated. Andrew Coombs, a Citigroup analyst, maintained a 'buy' rating on CS in a report titled "This Is Not 2008 (Global Financial Crisis)" and described CS as "at a stock price level where brave investors should buy." The largest U.S. bank, JPMorgan Chase, also stated that "CS’s capital and liquidity positions are both sound."

Can CS, with 166 Years of Tradition, Overcome the Crisis? Strategic Review Results to Be Announced on the 27th

Headquartered in Zurich, Switzerland, CS was established in 1856 to raise funds necessary for building the Swiss railway system. CS is credited with playing a significant role in Switzerland’s economic development. It supported entrepreneurs financially and invested in the Gotthard Tunnel connecting Zurich and Lugano, Italy, in 1882.

In the 1990s, CS pursued an aggressive acquisition strategy. It acquired Bank Leu, one of Switzerland’s oldest banks, in 1990, and in 1993 acquired Volksbank, then the fifth-largest bank in Switzerland, laying the foundation for growth into a global financial group.

CS was also regarded as one of the banks least affected during the 2008 global financial crisis. The Wall Street Journal noted, "Credit Suisse weathered the credit crisis better than many of its competitors." However, amid recent crisis rumors, its stock price has fallen to less than half of its level at the beginning of the year.

Meanwhile, as crisis rumors escalate, the Swiss National Bank (SNB) announced it is closely monitoring CS’s situation. CS is scheduled to release its third-quarter earnings and a strategic review outlining corporate innovation strategies on the 27th. This is expected to include plans for a large-scale reduction of its IB business.

This content was produced with the assistance of AI translation services.