What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing with 800 billion dollars of assets. Credit suisse is one of the nine so-called bulge bracket investment banks that dominate the financial markets. They have offices in every major financial hub around the world and are involved in everything from mergers and acquisitions, ipos trading and managing money for ultra high net worth individuals, they've consistently ranked as one of the top banks in europe and around the world since their founding. More than 150 years ago, despite their rich history, their recent performance has been nothing short of abysmal since its peak before the financial crisis.

Their stock has lost more than ninety percent of its value and seventy percent, since they ipo'd on the new york stock exchange in 1995.. Their poor risk management and laundry list of shady business activities have caused investors to dump their shares like rats fleeing a sinking ship. Most notably, they were one of the hardest hit banks by the archagos disaster, losing five and a half billion dollars, or more than a quarter of their current market cap. When bill huang's family office blew up in this video, we'll look at how credit suites established itself.

As a bulge bracket investment bank and how all came crumbling down before we get into the video, don't forget to get your two free stocks when you deposit one hundred dollars in an additional three free stocks, when you deposit, two thousand dollars in a new moomoo, account Link in the description below and now back to the video credit suisse was founded in switzerland. All the way back in 1852 by a man named alfred escher, the original purpose of the bank was to fund the development of switzerland's railway network over time they expanded into a broader range of banking services, taking deposits from individuals and lending money to businesses throughout the 1900S, they grew rapidly eventually becoming one of the largest banks in the country. They benefited from switzerland's long-standing neutrality policy, as well as their banking secrecy regulations. Many wealthy foreigners wanted to deposit their money in a swiss bank to avoid expropriation or unwanted attention in their home countries.

Building on their success in the domestic market, credit suisse went on an acquisition spree buying up other banks around the world. The most significant of these was us-based first boston, which was one of the largest investment banks of the time after their acquisitions. The swiss bank transformed itself into a full service investment bank with tens of thousands of employees in offices around the world. They advised on some of the biggest mergers and acquisitions in ipos.

They also became a major player in capital markets trading and making markets in all major asset classes. The early to mid 2000s were the golden years for credit suisse. Like many other investment banks, they were heavily involved in the red-hot u.s real estate market and made a killing by packaging residential mortgages into mortgage-backed securities and then selling them to institutional investors when the bubble popped in 2008, this separated the weak investment banks from the straw. Many banks had significant exposure to subprime mortgages that went into default, causing the bankruptcies of lehman brothers and bear stearns.

Other banks, like citigroup, had to be bailed out by the government at very unfavorable terms, massively diluting their equity value. While credit suites did have some exposure to subprime mortgages, they did a good job at controlling their risk and hedging their positions. They recorded about one billion dollars worth of losses related to their position in mortgage-backed securities, which is pretty small when you consider that they had over one trillion dollars in total assets at the time they didn't need any government bailouts and their stock price was one of The quickest to rebound making back most of its losses by the end of 2009, most credit suisse investors felt relief for dodging a bullet with the financial crisis. But little did they know that the real pain was still yet to come.

While credit suisse managed the financial crisis well, the same could not be said for union bank of switzerland or ubs, which is switzerland's other major investment bank. They recorded a 23 billion loss related to the financial crisis and has to be bailed out by the government. Not wanting to do more bailouts in the future, the swiss financial regulators substantially increased the capital requirements for swiss banks, especially with regards to risky assets held on their balance sheets. Even though credit suisse did not require a bailout in 2008, they still had to abide by these stricter regulations, as investment banks, securitize mortgages and do other things of this nature.

They have to put up cash up front to buy up these assets before repackaging them and selling them to their clients to fund these purchases. They generally borrow money which increases both their returns and their risk. If these assets go bad like they did in 2008, the swiss regulators said that they now need to hold more cash or other safe assets as reserves to protect them from potential losses in their risky assets. This decreases the amount of leverage that they can take on.

The swiss regulations were far more restrictive than other countries which put credit suisse at a disadvantage to their peers in terms of return on equity. In light of these changes, credit suites made a strategic decision to reduce their focus on investment, banking in capital markets and instead focus their growth on their private banking and wealth management. Businesses. Wealth management involves giving financial advice, tax planning, services, investment products and financing to high net worth clients.

They targeted ultra high net worth individuals, people with net worth above 50 million dollars and provided white glove service to each client. In 2019, credit suisse appointed tjm thiam to be the new ceo. He went all in on this strategy, laying off thousands of traders while rapidly expanding their wealth management business, especially in asia. As a key example of his priorities.

One time one of chris ruiz's wealthy clients was a business owner. His company received a hostile takeover bid, backed by financing from credit suisse. The client called diam and was livid thyme, told the investment bankers to pull funding for the hostile takeover. Whatever fees they could make from financing, the takeover was less important than maintaining trust with their ultra high net worth wealth management clients.

This clearly showed his priorities in putting the wealth management business over everything else within the first three years of his tenure. Thiam reduced capital markets as a percentage of overall revenue from 52 to just 35 percent, while increasing wealth management and other related business units, because wealth management is relatively less capital intensive. This increased the bank's return on equity while at the same time reduced their risk. It looked like everything was going according to plant one of thiam's top lieutenants was iqbal khan, who was in charge of the bank's international wealth management division.

He was a rising star within credit, suites and many insiders viewed him as a potential successor to the ceo position. With thiam, possibly viewing khan as a threat to take his job, the relationship between the two men deteriorated around 2019 iqbal decided to leave credit suites to join their largest rival ubs. This could potentially be a big problem as head of wealth management. Iqbal had extensive professional relationships with creswees network of ultra high net worth clients.

Many of them probably became clients of prep suites because they had confidence and trust in khan. Now that khan was moving to ubs, he could potentially poach credit suisse's clients and convince them to switch over to ubs. At least that was the fear among the upper echelons of credit, suites credit suisse, hired private investigators to follow khan around and check if he was inappropriately poaching their clients. While it's unclear, if it was illegal, it was certainly outside of acceptable industry norms and most people considered it to be immoral.

By this point, it was well known that thyam and khan had a souring relationship and many suspected that he was the one that ordered the spying. An internal investigation found that ceo, pierre, olivier bowie, ordered the spying independently and he was acting without the knowledge or consent of ceo thiam bayem maintains that he had no involvement in the so-called spy gate scandal, but nevertheless, a dark cloud formed over his reputation. In february of 2020, he resigned as ceo. The spy guy scandal highlights a broader cultural problem that has plagued the swiss bank for the past two decades.

There's always a motivation for employees to meet profit targets and make their year-end bonuses. Even if you have to stretch the ethical boundaries, while this is a problem at almost all investment banks, credit suisse has seemed particularly vulnerable to the scandals. This chart shows all the fines credit suisse has been forced to pay over the past 20 years. It only includes fines levied by us authorities, plus it significantly understates their global damages.

But it's enough to get the point across since 2000, they've paid out over 10 billion dollars to u.s regulators for a wide range of offenses, the most significant of which are helping iranian entities circumvent, u.s economic sanctions, misleading investors who bought their subprime mortgage securities leading up To the financial crisis and the largest fine of over 5 billion dollars was related to helping their high net worth clients evade taxes. Remember that credit suisse's main focus has been its wealth management business. They provide a wide range of services to their high net worth clients, including tax strategy and planning. While it's fine to provide tax advice, credit suites would sometimes cross the line and help their clients illegally evade taxes and avoid detection.

According to the us department of justice. For decades, prior to and through 2009 cresweys ran a highly sophisticated operation to help their clients, falsify their tax returns and evade taxes. This included creating fake shell companies to hide their assets, as well as creating undeclared accounts that did not report to tax authorities. They would even go so far as hand delivering cash to their clients to avoid an electronic trail of evidence.

They were also charged with similar tax evasion schemes in germany, the uk and australia in total. They've helped tens, if not hundreds of thousands of client accounts evade taxes over the decades. After decades of scandal and litigation, the bank tried to turn a page and increase his compliance efforts. Forcing out ceo tjain theon over the spygate scandal sent a clear message to employees across the firm they wouldn't tolerate any improprieties, and they hoped that this could turn a new page in their troubled history.

2020 was a pretty good year for the bank, while they shifted their focus more towards wealth management. They still had very significant investment banking in capital markets operations. They were a big beneficiary of the spak boom being the chief underwriter for chemoth pala habitia specs, including the one that took virgin galactic public in addition to underwriting spacs and ipos. They also act as a prime broker.

This means that they execute trades on behalf of institutional clients such as hedge funds, and often provide the margin, loans and other forms of leverage. One of their prime brokerage clients was a family office called arcagos capital management run by none other than bill. Huang archagos entered into swap agreements with credit, suisse and other banks to gain a massive amount of leverage to pump up the share prices of viacom discovery and various other media and technology stocks. Any competent financial professional should have noticed something weird was going on when you saw these stocks pumping up in highly unusual fashion, but like a deer in front of headlights, credit suites kept lending billions of dollars to archaicos, while multiple banks lost money from archaegos credit suisse Was the hardest hit by far taking a five and a half billion dollar blow at best? This was extreme incompetence on the part of credit, suisse's employees and at worst they may have turned a blind eye to these risks, so they can continue collecting fees from archaicos and make their year-end bonuses.

In light of this disaster, grass squeeze fired multiple high-ranking executives, most significantly the head of their investment banking division, while the archaegos losses were a crushing blow to credit suisse's shareholders, none of their clients were directly impacted by it. This is a good thing, because maintaining trust in their ultra high net worth clients is critical for their wealth management strategy, but that very same year in 2021, credit suisse had another major scandal that intimately affected their clients founded by australian businessman lex greensell green cell capital Promised to revolutionize the supply chain, finance industry by harnessing the power of artificial intelligence. Industrial companies often buy raw materials from suppliers, and then it takes them a few months to make the finished product and send it to customers. This creates a problem because the expenses for buying the input products come before the cash is received from the sale of the finished goods.

This mismatch and timing between revenue and expenses can be a big problem for companies that are running a lean operation. Green cell would lend money to these companies upfront and, in return, they'd be paid back once the revenue is generated. This is risky because you are supplying money upfront in exchange for future revenue, which is by definition, risky, because it is in the future green cell claimed to mitigate this risk by using advanced artificial intelligence technologies to predict the creditworthiness of their borrowers and only lend to Ones which they have high confidence will make the future payments. This is a very capital intensive business because you have to supply money up front.

So where did greenstone get the money? They received the money from funds managed by none other than credit suisse credit suisse marketed these funds to their high net worth clients telling them that they carried low risk and higher returns than traditional investments such as bonds. Since 2017, they raised upwards of 10 billion dollars in green sale, linked funds. Whenever you hear someone sell you an investment opportunity with low risk and high returns, you should keep in mind that if something sounds too good to be true, it probably is, but given the trust that credit suisse built up with clients over many years, many of them Believed that this was a safe investment and bought into these green cell backed funds during the pandemic, people lost confidence in green cell's ability to collect on their accounts, receivable and the firm went bankrupt. The bankruptcy of greensell is an interesting topic on its own and we will make a video in the future going over this.

But the bottom line is this great: squeeze pitched the green sole funds as a safe investment with good returns. It ended up being far more risky than they thought in the swiss bank's wealthy. Clients are now on the hook for up to three billion dollars of losses. Credit squeeze is not directly recognizing losses from green sill, as it was their clients money not their own, but in some ways this makes it even worse, it's probably safe to assume that many of these clients are livid.

With these, unexpected losses in 2021 presuits had two major disasters: archaegos and green sill investment bankers and wealth management professionals are supposed to be among the smartest and most sophisticated professionals. That's why they command such high wages. You shouldn't expect them to make so many mistakes. If you're an ultra high net worth individual, why would you roll the dice with credit suites when you could instead choose one of the many competitors who haven't experienced these kinds of disasters? This undermines their entire wealth management strategy.

It seems like creswees just can't catch a break in 2022. They may be on the verge of yet another scandal. According to a financial times investigation, the swiss bank had lent significant sums of money to russian oligarchs, backed by their yachts and private jets. Following the ukraine invasion, western governments are seizing these assets, putting serious doubts as to the value of these loans.

Grassroots quickly sold these loans to hedge funds at a significant discount to get the loans off their balance sheet. Given the uncertainties, this was probably a prudent decision from a risk management perspective. Nothing looks terribly incriminating so far. The swiss bank presumably made these loans before the sanctions were imposed, so they may have been completely above board, but, according to the financial times grassroots told these hedge funds to destroy and permanently erase any documents related to transactions, to prevent any leaks of the media.

Telling people to destroy financial documents is never a good look. All these scandals and disasters have caused chris whis's share price to lose more than 90 of its value since its peak in 2007.. They currently have a market cap of just 18 billion dollars, making them the least valuable of the so-called bulge bracket investment banks, and most of this underperformance has been the result of self-inflicted wounds. Over the past decade, they've paid about 10 billion dollars in fines to the us authorities alone, as well as losing five and a half billion dollars related to the archagos disaster.

This already gets them to 15 and a half billion dollars of extraordinary losses. If you also consider the fines that they've paid over the years to european regulators, this brings their total extraordinary losses, pretty close to their 18 billion market cap today. Well, just about all the investment banks, make mistakes from time to time and have to pay some fines. Credit squeeze is, on a whole different level.

The upper echelons of pressures recognize that there's a serious culture problem at the bank and are at least taking some symbolic steps to correct this. This past january, they fired the chairman of the board after he violated covet quarantine rules by attending a tennis game in the uk, where he should have been self-isolating. While it's not a good thing to break coveted restrictions, it's not exactly a heinous financial crime by firing their most senior member of the firm for something so small credit suisse is sending a clear message to its employees at all levels of the hierarchy. They will do whatever it takes to regain the trust, their clients, regulators and shareholders, but with multiple scandals still yet to be resolved in a stock price trading at less than half of tangible booked value, they certainly have their word cut out for them.

Alright guys that wraps it up for this video, what do you think about credit suites? Can they ever make back their former glory? Let us know in the comments section below, as always. Thank you so much for watching and we'll see you in the next one wall, street millennial, signing out.