Paradeplatz 8
Credit Suisse Group, which began as a commercial bank in 1856, at a time when Switzerland was first embracing the industrial revolution, is Switzerland's largest bank and one of the ten largest financial services companies in the world. The group is organized into five business units: Credit Suisse Volksbank, which provides consumer and business banking within Switzerland; Credit Suisse Private Banking, which is one of the largest private banking operations in the world; Credit Suisse First Boston, which handles the group's worldwide investment banking activities; Credit Suisse Asset Management, which manages funds for institutional investors worldwide; and Winterthur, which was acquired in mid-1997 and is a global insurance group and one of the largest insurers in Europe. Credit Suisse has responded to the rapidly changing global financial markets of the 1990s by diversifying into new areas of finance and by enhancing its international operations.
Quickly Became Switzerland's Largest Bank After 1856 Founding
In 1856 Switzerland's federal constitution was only eight years old and there was little industry in the country as the shift from an agricultural to an industrial economy had just begun. Alfred Escher, a young Zurich politician from a prominent local family, was making slow progress in his talks with foreign banks about ways to finance a proposed northeastern railway, so he decided to set up an independent bank in Zurich, putting SFr 3 million worth of shares on public offer. The response was overwhelming: he received SFr 218 million in subscriptions within three days, and Credit Suisse opened for business on July 16.
The American Civil War had a great impact on the emerging textile industry in Switzerland, which suffered when cotton prices collapsed after the war ended. Credit Suisse posted its first and only loss ever in 1867.
The growth of other industries in Switzerland and the continued expansion of the railroads provided ample opportunities for Credit Suisse to grow, however. The bank helped develop the Swiss monetary system and, by the end of the Franco-Prussian War in 1871, Credit Suisse was the largest bank in Switzerland.
Switzerland Became Banking Capital of the World by World War I
The next 40 years, to the beginning of World War I, came to be known as the belle epoque for both the continent and for Credit Suisse. A number of significant changes occurred during this period, including the revision of the federal constitution in 1874 and the resulting political changes that eventually led to proportional representation in local and federal government; an increase in savings, which enabled the country to become an exporter of capital by the mid-1880s and reduce its reliance on foreign capital; and the introduction of electricity, the telephone, and the telegraph, all of which required large infusions of capital for construction of factories, power plants, and phone systems.
The founding of the Swiss National Bank in 1907 and the growth in foreign investment by Swiss banks sowed the seeds for Switzerland's eventual role as the banking capital of the world. Credit Suisse also branched out from Zurich during this period and had 13 different locations in Switzerland by the beginning of World War I.
With the outbreak of World War I, foreign investment stopped completely. As investors in hostile countries returned Swiss securities, Credit Suisse played a crucial role in placing them on the Swiss market. Credit Suisse also had to defend the interests of Swiss investors abroad, a delicate matter during such a chaotic period.
After World War I, Credit Suisse continued financing the electrification of the country and, in response to a coal shortage, helped finance the national railroad's conversion to electricity in 1924. Foreign investment expanded rapidly during the 1920s, a period that came to a devastating end with the stock market crash in 1929.
The Great Depression led to cataclysmic changes in Europe, including the rise of nationalist thinking, the imposition of a range of trade barriers, including protective tariffs and import quotas, and other developments that resulted in lower production levels, less investment, and economic decline.
Increasing tensions in Europe led to Credit Suisse's emphasis on English-speaking companies, which resulted in the establishment of the Swiss-American Corporation in 1939 to focus on the securities business and the opening of Credit Suisse's first foreign branch in New York in 1940.
During World War II Credit Suisse extended large amounts of credit to Swiss authorities, who were owed more than SFr 1.7 billion by Germany by the end of the war. Despite the loss of almost half of the company's employees to war-related service, Credit Suisse emerged from the conflagration financially sound and poised to capitalize on the impending economic upturn.
After the end of World War II, as normal banking activities resumed, reconstruction of the war-torn continent got under way and Credit Suisse again took up issuing paper for foreign debtors. At the same time, Credit Suisse expanded its services to its regular customers by developing new and different types of savings accounts and broadening into activities that were formerly handled by subsidiaries, such as issuing credit cards and providing consumer credit.
During the 1960s the bank also set up a farsighted business arrangement with White Weld, a leading American investment bank in Europe, which would eventually establish Credit Suisse's leading role in the Eurobond-issuing market and would ultimately lead to its relationship with the American investment bank First Boston.
Foreign exchange dealings assumed greater importance during this time, along with the precious metals markets. With the emergence of a free gold market in 1968, Credit Suisse became a major gold trading house and, through its acquisition of the precious metals refinery Valcambi S.A., in Ticino, a manufacturer of ingots and coins. By the turn of the decade, Credit Suisse had offices on every continent except Antarctica.
The 1970s brought the introduction of floating exchange rates and the subsequent devaluation of the dollar, a loss of investor confidence in the American market, and the oil crisis of 1973. The bank also experienced a major scandal in 1977 when authorities began investigating a fraudulent banking and foreign exchange trading scheme at the company's Chiasso branch involving more than $1.2 billion. The losses resulted in the resignation of several top executives and left the current chairman, Rainer Gut, second in line following the retirement of Chairman Otto Aeppli in 1983.
Rainer Gut Instilled Major Changes During the 1980s
Gut, who was Swiss born but trained in the United States, brought a measure of stateside savvy and aggressiveness to Credit Suisse. A former partner in New York's Lazard Freres, Gut has shifted the company's focus from traditional Swiss banking practices, which emphasize security and caution, to world investment banking and money management.
By 1986 the bank's assets were $46 billion, and somewhere between $75 and $150 billion more were under active management by the bank--well ahead of the estimated $50 billion under the management of the leading American bank in the field, Citicorp. Under Gut, Credit Suisse was the first Swiss bank to acquire a bank in West Germany, Effectenbank, and it became one of only a handful of foreign operations doing trust banking in Japan.
In 1978 Credit Suisse First Boston (CSFB), a joint venture with the New York investment bank First Boston, was formed after White Weld was purchased by Merrill Lynch. The terms under which CSFB was established caused the defection of CSFB Chairman and Chief Executive John Craven, who was replaced by Michael von Clemm.
Although he was consistently pilloried as a bad manager and was eventually replaced as chief executive by Hans Ulrich Doerig from Credit Suisse, von Clemm was widely credited with helping the company achieve its undisputed dominance of the Eurobond market with innovative financing deals. He also oversaw, however, one of the greatest financial disasters in the company's history, a $150 million issue bought by the company in 1980. The deal eventually cost CSFB between $20 and $40 million, and the three years during which von Clemm managed the company were its least successful.
Four years later six executives, including three executive directors, left Credit Suisse First Boston. The exodus coincided with the appointment of Jack Hennessey, formerly of First Boston, as chief executive to replace Doerig, who returned to Credit Suisse. A former assistant secretary of the treasury, Hennessey was brought in to reduce the friction and to assume management duties. Von Clemm remained as chairman. The problems were not over, however.
At the beginning of 1984, three CSFB executives defected to Merrill Lynch, taking seven others with them. Published accounts of the brouhaha suggested that the expansion of Deputy Chairman Hans-Joerg Rudloff's power base within the company offended a number of the executives, many of whom were accustomed to operating in a wide open entrepreneurial environment. But the company was growing too large, and as senior executives tried to figure out how to manage CSFB, the infighting grew nastier; Rudloff was considered the consummate corporate infighter.
The final defection came in 1986 when von Clemm resigned quietly after 16 years with the company to devote more time to outside interests. Hennessey took over as chairman and chief executive.
At about the same time, full-service investment banking companies such as Salomon Brothers and Goldman Sachs, as well as Japanese and German concerns, started pushing their way into the Eurobond market. That forced CSFB to diversify into mergers and acquisitions, equity sales, and other specialties, as CSFB's share of the Eurobond market dropped from more than 16 percent to just more than 11 percent.
In addition, CSFB was encountering competition from, of all places, its own two parent companies, Credit Suisse and First Boston. As the need for better cooperation between family members became apparent, CSFB moved one of its New York executives to London to establish better relations. For a while things seemed to be working. One of the first joint ventures among the three companies involved a $4 billion bond floated by General Motors Acceptance Corporation. While First Boston was lead manager, Credit Suisse provided a letter of credit to back the notes and CSFB placed $400 million of the bonds in Europe.
The true survivor of CSFB remained Rudloff, who took the company into Amsterdam with a bank acquisition there in 1986, and then became a director and officer of Credit Suisse itself in early 1987. Rudloff's return to Switzerland was viewed by the staid Swiss banking establishment as a harbinger that the cozy days of gentlemanly Swiss banking had come to a close.
One result of the newly deregulated and ever-fluctuating markets of the 1980s was that the relationship among Switzerland's three major banks (which included Credit Suisse, Union Bank of Switzerland, and Swiss Bank Corporation), collectively known as "the syndicate," could no longer be so friendly. Once a fairly tightly knit trio, they adopted new guidelines giving each other flexibility to withdraw from deals with which the others are involved if they have doubts about the borrower and even to return up to 60 percent of their allocation of bonds after a deal is done.
Credit Suisse was characterized in the financial press as a lone wolf rather than a pack hunter sharing the spoils of its deals with other members of the syndicate, conduct that further indicated the end of an era in the Swiss banking industry. Some of the first signs of the new conditions came when restrictions on gray market trading (trading before the valuation date) were relaxed. Credit Suisse moved aggressively into this area of finance, one it had previously shunned. The other two major Swiss banks sat back and waited and watched. In any event, by the early 1990s the syndicate was history as Switzerland, like many other countries worldwide, continued to deregulate.
Meanwhile, the company was tainted by mid-1980s charges of laundering drug money from Turkey and Bulgaria. Although the company denied the charges and, technically, money laundering was not illegal unless the money was used to buy drugs, the stain remained.
Acquisitions, Restructurings, and Diversification Highlighted 1990s
The stock market crash of 1987 hit CSFB and First Boston particularly hard. During the year that followed, CSFB's problems included an estimated $15 million loss on a 1987 debt swap with Italy. First Boston, meanwhile, suffered large losses from bad bridge loans for mergers and acquisitions. In 1988 Credit Suisse and First Boston restructured their troublesome marriage under a new company, CS First Boston. Two years later, Credit Suisse bailed out the still-troubled First Boston by agreeing to pump $300 million in equity into the firm, increasing Credit Suisse's stake to 60 percent and making the Swiss bank the first foreigner to own a Wall Street investment bank. Relations between Credit Suisse and First Boston managers remained strained during the early 1990s, as it was difficult to reconcile the more freewheeling style of First Boston with the more conservative (if aggressive for Switzerland) style of Credit Suisse.
Meanwhile, Credit Suisse had been reorganized in early 1989. A new publicly traded holding company, called CS Holding, was created under which were placed Credit Suisse, the group's full-service bank in Switzerland; CS First Boston; Fides Holding, which specialized in trust business and management consulting in Switzerland; and the company's controlling stake in Electrowatt Ltd., the Swiss power utility. This simplification of what had been an extremely complex web of cross-holdings and sister firms cost the company about $80 million.
Acquisitions and new growth areas were major themes of the 1990s for Credit Suisse. In April 1990 Bank Leu, Switzerland's fifth largest bank, was acquired in the first hostile takeover in Swiss banking. Bank Leu, which catered to the wealthy in Switzerland, became the centerpiece for Credit Suisse's private banking business, which also included Clariden Bank, serving customers in North and South America, and the northern European activities of Bank Hofmann.
In addition to private banking, Credit Suisse added another operating unit to its organization chart when it entered the insurance business, the first Swiss bank to do so, by establishing CS Life Insurance in October 1990. The group's involvement in insurance broadened in December 1994 when it entered into an alliance with Swiss Re, and in December 1995 when another alliance was formed, this one with Winterthur Insurance, the second largest Swiss-based insurance company.
In early 1993 Credit Suisse outbid Union Bank of Switzerland for the country's fifth largest bank, the troubled Swiss Volksbank, in a SFr 1.6 billion (US $1.1 billion) deal. Over the next few years, Credit Suisse and Swiss Volksbank's network of domestic branches were reconciled.
In 1994 the Fides trust business was placed within the Credit Suisse banking operation. A much more significant restructuring and a refocusing of the overall group began in 1996. Early in the year Credit Suisse discussed a merger with Union Bank, which would have created a Swiss banking giant. Instead, Credit Suisse decided to turn its attention away from Switzerland; rather than being a Swiss bank with significant international interests, the group decided to become a truly international banking and financial services power that happened to be based in Switzerland and had some core businesses there. Under the resulting reorganization, CS Holding was renamed Credit Suisse Group. The company's operations were reorganized into a domestic banking unit called Credit Suisse Volksbank, which represented a full merger of the operations of the old Credit Suisse and Swiss Volksbank; a private banking unit called Credit Suisse Private Banking, which included Bank Leu, Clariden Bank, Bank Hofmann, and other CS Holding private banks; Credit Suisse First Boston, which included a full merging of CS First Boston and CS Holding's other corporate banking operations; and Credit Suisse Asset Management. All units except for Credit Suisse Volksbank were to operate on a worldwide basis. Later in 1996 Credit Suisse made its first moves toward divesting its controlling stake in Electrowatt, which promised to focus the group further on its core financial services businesses.
About the same time that the company was being restructured for the 21st century, its activities--and those of other "Big Three" Swiss banks--during World War II were being reexamined, with resulting negative publicity. Reports of the banks' financial dealings with Nazi Germany were published, and Jewish groups pushed for reclamation of money that had been placed into Swiss bank accounts before World War II by victims of the Holocaust. The Swiss banks were initially reluctant to cooperate with these efforts--in part because of their traditional secrecy--but the resulting worldwide outcry forced the banks to publish lists of people who owned dormant accounts that had been opened before 1945, accounts that contained a total of SFr 61.2 million (US $41.3 million) in them. In early 1997, the Big Three banks agreed to set up a SFr 100 million (US $70 million) humanitarian fund for the victims of the Holocaust.
In August 1997 Credit Suisse Group made a great leap forward in the insurance sector when it announced the acquisition of Winterthur Insurance for about US $9.51 billion. This move immediately vaulted Credit Suisse into the top ten financial services companies in the world, with total assets of about SFr 700 billion (US $466 billion), which brought it close to the size of Europe's largest bank, Deutsche Bank AG. It also increased the group's assets under management to about SFr 700 billion (US $466 billion), which ranked it third in the world, trailing only Fidelity Investments and AXA/UAP/Equitable. Winterthur was set up within the group umbrella as a fifth operating unit, and Credit Suisse's CS Life would be integrated into Winterthur Life.
The integration of Winterthur, along with antitrust issues raised by the merger, particularly in the United States where banking and insurance still, by law, had to be kept separate, were sure to dominate the late 1990s, but Credit Suisse Group was now a clear giant in global finance. The company was well positioned to reach its goal of international greatness.
Principal Subsidiaries: Neue Aargauer Bank; Bank Leu AG; Affida Bank; Bank Heusser & Cie. AG; Credit Suisse Fides; Clariden Bank; Bank Hofmann AG; Bank für Handel & Effekten; Credit Suisse Trust; Credis International Fund Holding Ltd.; Credit Suisse (Gibraltar) Limited; Credit Suisse (Guernsey) Ltd.; Credit Suisse (Luxembourg) S.A.; Credit Suisse (France) S.A.; Credit Suisse (Bahamas) Ltd.; Credit Suisse Trust and Banking Co. Ltd. (Japan); Credit Suisse, Inc. (Canada); Credit Suisse Trust Holdings (Guernsey); Credit Suisse Securities Ltd. (U.K.); Swiss American Securities Inc. (U.S.A.); Credit Suisse Deposit Centre (Guernsey); Credit Suisse Asset Management (Australia); Credit Suisse Asset Management (Praha) s.r.o. (Czech Republic); Credit Suisse Asset Management (Polska) S.p. z.o.o. (Poland); Credit Suisse Asset Management Ltd. (U.K.); BEA Associates (U.S.A.); Credis (Deutschland) GmbH; Credis Investissements (France) S.A.; Credis SIM S.p.A. (Italy); Credit Suisse Investment Funds (Moscow) A/O (Russia).
Principal Operating Units: Credit Suisse; Credit Suisse Private Banking; Credit Suisse First Boston; Credit Suisse Asset Management; Winterthur.
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