It is a measure of how seriously the Swiss authorities view Credit Suisse’s position that they are, according to weekend reports, orchestrating a UBS takeover.

It is not the first time that a merger of these banking behemoths has been considered. Last time it was Credit Suisse which considered acquiring UBS when it was in serious difficulties after the 2008 Global Financial Crisis. UBS survived, with Swiss government backing, shareholder cash, endless cost-cutting and, eventually, a return to its strengths: wealth and asset management not the chimera of an all-singing, all-dancing full service global bank. Investment banking was scaled down. Doing this required not just a reset of its business but its culture, which had underpinned so many of its problems. It took?—?after some false starts?—?a decade before the changes became effective.

It was not just banks which had to rethink themselves. So did the Swiss financial and political establishment. For the best part of a century, Switzerland’s financial USP was discretion, carefully protected by banking secrecy laws. Or, more bluntly, Swiss banks were where you hid your money, few questions asked. That ended as a result of US fury on discovering how UBS and others had helped US taxpayers evade tax. So the new USP became expertise: put your money in Switzerland not to hide it but because Swiss bankers know how to manage it well.

Credit Suisse’s current travails blow a hole in that. How is it that, despite all the regulatory changes, all the scrutiny, all the lessons learned (surely?), all the training, all the rules, Credit Suisse has got itself into such a mess that its acquisition by its rival is now even in contemplation? And if such a large, important bank can get into such a mess, what does it say about Swiss expertise and, indeed, Swiss regulatory effectiveness?

One clue may be in the reason for its announcement on 9 March of a delay to its 2022 annual report after a “late call from the US Securities and Exchange Commission” the previous day. Why was the SEC making comments about the “technical assessment of previously disclosed revisions to the consolidated cashflow statements” in 2019 and 2020 and?—?this is the kicker?—?“related controls” in March 2023 in a late night call? What or who triggered this? One possibility is that someone escalated this to the SEC because other attempts at escalation and remediation had not worked. If correct, that is very troubling because it suggests either that there were no effective routes for raising concerns or, worse still, that concerns raised were ignored or ineffectively handled. In short, the problem may not just be inadequate financial processes (“material weaknesses in our internal control over financial reporting” and a management failure to “design and maintain an effective risk assessment process”?—?oops!). It may also be that the bank’s processes?—?and culture?—?for identifying, escalating and handling concerns are inadequate too. If that is the case, what other problems are lurking? This will be bothering Credit Suisse, the Swiss regulator, the Swiss central bank?—?and UBS?—?if does decide to acquire all or part of its rival.

What is in it for UBS? Taking out a competitor, its clients, funds under management and its better employees. Yes?—?all these. But is an acquisition necessary? Clients and staff will make their own decisions, regardless of what Boards decide. The risks for UBS are considerable: absorbing a well-run company is hard enough; absorbing one with difficulties something else entirely. There is every likelihood of plenty more nasties lurking under the carpet. The reputational difficulties will stick to UBS’s name, no matter how often the press releases refer to past Credit Suisse problems. The costs will be enormous?—?not just financially but in management time, energy and enhanced regulatory scrutiny. Will it be a distraction from UBS’s own plans and for its current senior management, largely new and brought in to build on what has been achieved by UBS not to clean up another bank’s mess?

There have been plenty of red flags (Greensill, Archegos, Mozambique tuna bonds, GFG) that all has not been well within Credit Suisse. Some parts were well able to identify issues with some of the clients the bank was keen to do business with. Despite that those concerns were ignored or, more likely, rationalised away. (Why, for instance, did anyone think it sensible to take on Archegos, an entity set up by someone?—?Bill Hwang?—?fined a few years earlier by the SEC for insider dealing?) This suggests an institution with no sound way of managing its risks and the conflicts of interest arising from the desire to do apparently profitable business set against the risks of taking on clients whose adherence to rules is more apparent than real. Changing that is not the work of a moment as Ulrich Koerner, Credit Suisse’s CEO (part of UBS’s senior management team 2009–2022) or its new General Counsel (formerly UBS’ General Counsel 2008–2022) will tell you.

It is not a problem confined to Credit Suisse of course. Questions have been raised about Goldman Sachs’ role in relation to Silicon Valley Bank (not for the first time). Barclays has faced endless issues caused by the tensions between its investment bank and its retail bank, its latest problem arising from its appointment of Jes Staley and the judgment shown by its Board when questions about his relationship with Epstein were raised. (If only the Board and regulators had taken more seriously Staley’s failure to understand why whistleblowing matters when concerns were raised about his judgment in 2017–2018.)

Over the last few decades the creation of ever larger financial institutions has led to multiple conflicts of interest between the interests of the institution, its clients, between different categories of clients and between different parts of the business. Oodles of rules sought to recreate what had previously been legal barriers in order to manage those conflicts. This did not work. Repeated scandals and harm to the ultimate customers of banks and taxpayers led to more intrusive regulation and ring-fencing?—?the 21st century’s equivalent of Glass-Steagall. Regulators have been playing Whack-A-Mole with financial institutions ever since. But conflicts of interest are at the heart of all financial scandals. As an official of the US’s Financial Crimes Enforcement Team said when the Vatican Bank did a deal with the US in 2013 “large amounts of money sometimes bring out the worst in people.

Is it time to rethink whether such large global institutions, however well-capitalised or regulated, are a good idea? If you have institutions with built-in conflicts of interest, you will always have problems, even if systemic risk is avoided. Maybe smaller, more focused entities are best, ones which understand that banking is a service industry, part of an economy’s plumbing, there to serve others not help itself. Maybe global banks?—?much like other aspects of globalisation?—?are an idea which needs challenging and rethinking?


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