All the Devils
Thirty Years in Finance Part II: The Meltdown of Credit Suisse
“If you do well enough, maybe one day you’ll take my job. But, I have to warn you, it’s a shit job.” — Brady Dougan, former CEO of Credit Suisse
In spring 1998, I was called by a headhunter and invited to dinner at the Halkin Hotel in London’s Belgravia. As a young research analyst in a sector that was booming, I was in demand. My host was John Conlin, head of European Equity Research at Credit Suisse First Boston.
John had some good stories to tell. He was the son-in-law of Tom Murphy, former chairman and chief executive officer of media giant Capital Cities and one of Warren Buffett’s favorite people. Years later, when I eventually met Buffett, he described Murphy as a hero—“overall the best business manager I’ve ever met.” John warmed me up with tales from Omaha before moving on to his pitch—that he was in London to make Credit Suisse First Boston the leading equity franchise in Europe.
Had I not left my very first job, I might have already been working for John, since BZW, the firm I’d joined as a graduate trainee, had been bought by Credit Suisse a few months earlier. But by then, I’d moved on and John was angling for me to return. Bolstered by BZW, Credit Suisse moved from sixteenth to fifth place in UK equity trading but it continued to lag in other European markets, where I focused my research efforts.1
My view of Credit Suisse from the outside was not complimentary. In September 1998 I wrote a sell note on the stock, warning about excessive leverage on the group’s balance sheet following losses incurred in Russia. Shortly afterwards, the firm made headlines when a trader in a team styling themselves the Flaming Ferraris (after a fiery rum cocktail they’d consume on Friday nights) was caught trying to manipulate shares on the Swedish Stock Exchange. Conlin offered me a generous two-year guaranteed package, but I refused.2
By early 2000, all that had changed. A feature of firms in those days was that nothing ever really stuck. Three members of the Flaming Ferraris were fired, the firm paid a $240,000 fine, and everyone moved on. Nor was Credit Suisse all that different from other firms. In the prior ten years, a hurricane of scandal had swirled through Wall Street. In two cases the result was bankruptcy (Drexel Burnham Lambert, Barings) and in one the firm became a forced seller (Kidder Peabody) but across others, jobs were lost, desks were restructured and the ticker tape rolled.
The archetype was Salomon Brothers. In 1991, the firm was fined $190 million for submitting illegal bids on US treasury securities and required to set aside $100 million in a restitution fund for injured parties. The trader involved was sent to prison, the firm’s CEO, John Gutfreund, was banned for life from heading a securities business, and Warren Buffett took over. The firm’s earnings – and its stock – rebounded. It eventually sold itself at almost twice book value.
In early 2000, Credit Suisse called again. By then John Conlin had left to take up a senior role at San Francisco-based investment bank Robertson Stephens. (He would be Robertson Stephens’ last ever CEO before its demise, but that’s a different story). His replacement in London was David Mathers, a former building materials analyst from HSBC James Capel who had gone on to be head of research before assuming the same role at Credit Suisse.
Mathers and his co-head (Credit Suisse was a big fan of co-heads) convinced me to join the firm. Looking back on my career, I guess I was always destined to join Credit Suisse. As before, I was offered a generous two-year guaranteed package. Such compensation structures would stymie the firm’s financial flexibility when the downturn hit, but I wasn’t going to refuse. In May 2000, I parked my car in the lot below Cabot Square, next to David Mathers’ Porsche, and headed up into the office.
I spent six years at Credit Suisse, rising to become managing director under Mathers’ patronage. Over that time, the firm completed an ill-advised acquisition of Donaldson, Lufkin & Jenrette (DLJ) which ushered in new colleagues but otherwise proved a colossal waste of shareholders’ money. Still, aside from an IPO allocation investigation, scandal was contained. The year I left, the firm generated record earnings of $9 billion and sat atop various league tables. In investment banking, it was the number one ranked firm for IPOs, number one in algorithmic trading and a leader in emerging market bond issuance. In private banking, it managed close to three quarters of a trillion dollars of high net-worth wealth, growing at a rate of around 6% a year.
Yet all was not as it seemed. A new history of Credit Suisse, out next week and available for pre-order, describes how the flames of the firm’s eventual downfall were stoked during that period. Duncan Mavin’s book, Meltdown: Scandal, Sleaze and the Collapse of Credit Suisse, charts the cascading crises that engulfed the firm. The number of crooks and incompetents that I rubbed shoulders with is staggering:
The private banker I may have seen on visits to Geneva who ripped off his clients in Eastern Europe.
The emerging markets banker I would have passed in the lobby who took bribes in an elaborate plot involving Mozambiquan politicians and Gulf-based financiers.
The private bankers who helped clients in US sanctioned countries disguise transactions to move US dollars.
Their colleagues who helped US clients avoid tax.
Traders from the Structured Credit Trading group I would have mingled with in the canteen who mismarked securities on the eve of the global financial crisis.
The Bulgarian tennis star turned private banker who aided money laundering.
All the devils were there. I had drinks with Lara Warner at an offsite in Orlando, Florida, before she became the Chief Risk Officer who allowed Greensill and Archegos to take up residence on Credit Suisse’s balance sheet. And my old mentor, David Mathers – who was promoted to Chief Financial Officer in 2010, a job he retained almost to the end – frustrated analysts (and regulators) by frequently shuffling bits of the bank around to emphasize the positives while understating the negatives.3
Should I have known?
