Credit Suisse was once one of the world’s leading banks, with a reputation for innovation and excellence. But in March 2023, it shocked the financial world by announcing that it had run out of cash and was being taken over by its rival UBS. How did this happen? And what can other banks learn from its demise?

The Causes

The root cause of Credit Suisse’s collapse was a loss of confidence among its customers, investors, and regulators. The bank had been plagued by a series of scandals and losses over the past few years, which eroded its credibility and trust. Some of these include:

• The Archegos debacle in 2021, when Credit Suisse lost US$5.5 billion after a hedge fund client defaulted on its margin calls.
• The Greensill fiasco in 2021, when Credit Suisse had to freeze US$10 billion of funds linked to a supply chain finance firm that went bankrupt amid fraud allegations.
• The Horta-Osorio resignation in 2022, when the chairman stepped down after breaching COVID-19 rules during a business trip to Brazil.
• The Koerner strategy in 2022, when the new CEO unveiled a restructuring plan that failed to impress investors and analysts.
• The liquidity crisis in 2023, when Credit Suisse faced a massive withdrawal of deposits and funding amid rumors of its impending failure.

The problem with Greensill, it was a huge issue, because that fund was marketed to a whole lot of (Credit Suisse’s) high-net-worth individual (HNI) clients as a very safe fund, as a way to get yield in a low-yield world, and when that blew up, a whole lot of their franchise lost money and they basically lost trust in Credit Suisse.

These events damaged Credit Suisse’s reputation and exposed its weaknesses in risk management, governance, and culture. The bank also faced increasing competition from other global players and fintech challengers. It failed to adapt to the changing market conditions and customer preferences.

The Lessons

One of the key lessons from Credit Suisse’s collapse is that banks need to embrace hybrid work models that allow their employees to work flexibly from anywhere. Credit Suisse was one of the few banks that resisted this trend and insisted on bringing staff back to the office after the pandemic. This alienated many workers who valued their autonomy and well-being. It also made it harder for the bank to attract and retain talent.

Another lesson is that banks need to invest more in digital transformation and innovation. Credit Suisse lagged behind its peers in adopting new technologies and services that could enhance its efficiency, customer experience, and resilience. It also missed out on opportunities to tap into new markets and segments.

Finally, banks need to foster a culture of accountability, transparency, and ethics. There were also material weaknesses in its financial reporting procedures. Credit Suisse suffered from a lack of oversight, communication, and alignment among its top management, board, and stakeholders. It also faced regulatory scrutiny for its involvement in various misconduct cases.

In the aftermath of 9/11, new regulations forced Swiss banks to abandon the client secrecy that for centuries formed their modus operandi, and banks like Credit Suisse took on greater risk in a bid to retain their profitability and prevent high-net-worth clients from taking their money elsewhere.

Credit Suisse’s collapse is a cautionary tale for all banks that want to survive and thrive in the post-pandemic era. They need to be agile, customer-centric, and responsible if they want to avoid becoming obsolete or irrelevant.