Credit Suisse’s Demise Blamed in Bondholder Suit on NY Bankers

A group of Credit Suisse Group AG’s European bondholders who were part of the $17 billion wipe-out in the bank’s demise sued its former executives, pointing to a “broken culture” and a series of scandals they trace to its New York-based investment banking operation.

(Bloomberg) — A group of Credit Suisse Group AG’s European bondholders who were part of the $17 billion wipe-out in the bank’s demise sued its former executives, pointing to a “broken culture” and a series of scandals they trace to its New York-based investment banking operation.

Bondholders based in Paris, Luxembourg, and St. Peter Port, Guernsey argue that self-serving executives chased short-term returns and bonuses from overly risky deals, resorting to unethical and illegal practices to acquire and keep high-revenue customers.

The suit filed late Tuesday in Brooklyn, New York names several Americans as defendants, including Brady W. Dougan, who served as chief executive officer from 2007 to 2015; Eric Varvel, who served as head of Credit Suisse’s investment banking division for several years; investment banking head James L. Amine; and Timothy P. O’Hara, who co-headed investment banking before becoming head of global markets. The class-action complaint was brought on behalf of holders of Credit Suisse Additional Tier 1 Capital, or AT1, bonds from Jan. 12 to March 19, 2023. 

Citing a 2021 report commissioned by Credit Suisse and published by law firm Paul, Weiss, Rifkind, Wharton & Garrison, the bondholders say the bank “was fatally plagued by incompetence and grift, and the senior leadership was incapable or unwilling to overhaul the corrupt foundation.” They claim the corruption started in New York.

“While Credit Suisse began as a conservative Swiss private bank, the vast majority of the people who were responsible for its demise were not staid Swiss bankers, but, rather, sharp-elbowed New York investment bankers,” according to the complaint.

Read More: How Scandal and Mistrust Ended Credit Suisse’s 166-Year Run

The lawsuit pins much of the blame for a culture that “valued short-term gain over long-term trust” on Dougan and fellow alumni of Credit Suisse First Boston who were his proteges when he took over as CEO.

Europeans are also named as defendants, including former CEO Tidjane Thiam, who according to the complaint lives in New York but is a French and Ivorian citizen. He replaced Dougan in 2015 and remained CEO until 2020. Ultimately Thiam failed to “roll back the influence of the US-focused investment banking” and overcome the bank’s culture, according to the complaint.

UBS Group AG agreed to take over Credit Suisse in an emergency government-backed deal in March, after the bank was hit by mounting client withdrawals.

In the six weeks after the rescue was rushed through, at least 120 claims were filed against the Swiss banking watchdog’s decision to wipe out the high-risk AT1 bonds as part of the deal. 

A UBS spokeswoman didn’t immediately respond to an email outside regular business hours seeking comment on the suit. Representatives of Exos Financial, which Dougan founded in 2015, also didn’t immediately respond outside regular business hours to an email seeking comment.

The case is Star Colbert v. Dougan, 23-cv-04582, US District Court, Eastern District of New York (Brooklyn).

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