September 30, 2019 / 10:17 AM / 9 months ago

Breakingviews - Cox: The gnomes of Zurich aren’t boring enough

ZURICH (Reuters Breakingviews) - Two custom-tailored wealthy men arguing at a champagne reception does not a Jason Bourne thriller make. Unless the combatants happen to be two of the most senior bankers in Zurich. This city’s professionals are normally known for being discreet and predictable - even boring, in the best sense of the word. In recent years they have also tried to burnish their ethical credentials.

Switzerland's national flag flies beside a logo of Swiss bank Credit Suisse at its headquarters at the Paradeplatz square in Zurich, July 31, 2019.

That’s why a dunderheaded decision by one bank, Credit Suisse, to hire clumsy private dicks to spy on a former rainmaker headed to arch-rival UBS is proving a big embarrassment. While an explanation of how the whole hubbub came about still awaits the outcome of an internal probe at Credit Suisse, it’s a revealing glimpse of this peculiar two-horse centre of global finance, where one in every six francs of economic value is tied to the industry.

There’s no place quite like Zurich. This town of just 402,000, on a lake so clean alpha types swim across it before heading to work just a few meters away, is home to two of the world’s most important financial institutions. The headquarters of Credit Suisse and UBS are literally separated by a few watch shops. No other financial centre has just two large institutions fighting for the same clients, in nearly identical business lines, by equally extracting virtue from their shared Swiss heritage.

This has created one of the fiercest rivalries on the planet. In business, there’s nothing quite like it. Not Wall Street titans Goldman Sachs versus Morgan Stanley, nor Deutsche Bank and Commerzbank, whose competing towers dominate the Frankfurt skyline. Perhaps only cross-town sports competitors, like soccer’s Manchester United and Manchester City, or baseball’s Yankees and Mets in New York City begin to scratch the surface.

Nonetheless, as Thomas Ulrich, president of the Zurich Banking Association wrote in the foreword to his group’s facts and figures brochure two years ago: “The common goal for all those involved must be to position the financial centre as stable and forward-looking, thus enabling it to maintain its appeal both internationally and locally and continue to play an important economic role in the Zurich region and throughout Switzerland.”

The headlines from Zurich over the past week hardly project an image of stability. A confrontation between private investigators hired by Credit Suisse, the bank run by Tidjane Thiam, to tail Iqbal Khan, a former underling with whom he had a falling out, has brought unwelcome attention to the Swiss banking complex.

For starters, the showdown just looks plain incompetent. The detectives were dispatched by Investigo, a firm perhaps better known for catching deadbeats trying to swindle their insurers out of claims. As has been chronicled with uncharacteristic glee by the Swiss press, including the normally uber-staid Neue Zuercher Zeitung, Khan caught sight of his followers and confronted them in a bit of a dust-up, though Investigo disputes this version of events.

For the Asian billionaires that Credit Suisse is courting with its wealth management prowess, the story does not induce confidence. Imagine the conversation between a private banker and a potential client in Singapore: “Let me get this straight: you want me to give you $500 million to manage quietly, but you can’t even discreetly keep an eye on a guy when he brings his kid to a soccer game in Rapperswil?”

It’s also ethically questionable. Credit Suisse agreed to let Khan go with relatively few strings attached. He was only restricted from popping over to a competitor for three months. Given how nearly every rival in town jockeyed to snag his services – Goldman Sachs, Lombard Odier and Julius Baer also courted him – this seems a miscalculation.

Maybe it was motivated by personal animus, including a now-infamous dispute between Khan and Thiam about shrubbery on their adjoining properties in the tony suburb of Herrliberg. Then what was the intent of having Khan tailed? Was it an attempt to catch him breaching his agreement not to woo former subordinates at Credit Suisse? Or was it simply to harass him? Lawyers at Homburger conducting what’s meant to be an independent probe for the board should provide some answers soon.

Without more clarity, the impression is that Credit Suisse was trying to hinder Khan’s move to UBS, whose own chief executive, Sergio Ermotti, is closer to retirement age than Thiam. That raises questions about the culture of the bank, and particularly decisions taken by Chief Operating Officer Pierre-Olivier Bouée, a fellow alum of McKinsey and France’s elite Ecole Nationale d’Administration, who followed Thiam from their previous employer, the British insurer Prudential.

This week, all eyes will be on Urs Rohner, who has chaired the $31 billion bank for eight years, hired Thiam, and has another couple of years left before reaching retirement age. Ahead of the release of the law firm’s findings, directors at Credit Suisse are closing ranks around Thiam, the Financial Times reported over the weekend.

As financiers in Zurich made plain to me last week, the risk is that the affair reflects poorly on the community at large, which has been trying to transform its reputation as merely a haven for bank secrecy to one of the highest standards of competency and ethical conduct. “Swiss banks are supposed to work like Swiss clocks, predictably and impeccably,” one senior banker told me.

It was just a year ago, after all, that the era of mystery-cloaked numbered Swiss bank accounts formally came to an end, when the Federal Tax Administration for the first time exchanged financial account data under global standards that aim to crack down on tax cheats. The days when European professionals could stash wealth across the border, beyond the prying eyes of the local tax man, are meant to be a thing of the past. Then again, if the tax man hires Investigo, there’s at least a good chance that erstwhile scofflaws will see the spies on their tails.


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