29 January, 2010

Switzerland Bank Mergers & Acquisitions (Credit Suisse Group)

Photo: Credit Suisse' head office in Zurich/ Zürich.
Photo credit: Credit Suisse. Copyright: Credit Suisse

Credit Suisse Group

Credit Suisse

Credit Suisse began life as Schweizerische Kreditanstalt (SKA, literally, the Swiss Credit Institution) in 1856 in Zurich. The bank was established by Alfred Escher, a prominent politician in the young Swiss Confederation and also the managing director of Nordostbahn (literally, Northeast Rail). By creating a local bank, Mr. Escher hoped to rely on Swiss capital rather than French capital in building a Swiss rail system. Throughout the next 40 years, SKA played a significant role in financing the construction of the Swiss rail network. During the period, the bank also helped create other financial companies, including insurer Swiss Re in 1863.

In 1870, Vienna and New York became the locations of the bank’s first international offices. Beginning in 1905, domestic branches were opened outside of Zurich for the first time when the bank took over a number of regional banks.

During the 1890s, SKA participated in the founding of a host of international banks: including Dreyfus & Co. in Frankfurt, the Zürcherisch-Amerikanische Trustgesellschaft, and perhaps most notably, the Banca Commerciale Italiana in 1894, which evolved into today’s Intesa Sanpaolo group.

In the 1900s, the bank turned its attention to financing the construction of the electric grid network and other industries. Meanwhile, the bank’s Paris office opened in 1910. In 1940, the bank established an American subsidiary to underwrite securities. In that same year, the French, Italian and English names were introduced for the first time, including the name Credit Suisse.

World War I and World War II devastated Europe and Credit Suisse’ international operations. As a neutral country, however, Switzerland escaped physically unharmed, and the bank fared far better than other European banks. Many clients also transferred their assets to Switzerland for safe-keeping during World War II. Detailed revelations that Credit Suisse’ and other Swiss banks’ role in financing the Nazi war machine only surfaced some 50 years after the end of the war. Meanwhile, it was also discovered that a number of Swiss banks including Credit Suisse concealed information about dormant bank accounts left by many European Jews who perished during World War II.

Credit Suisse opened a representative office in London in 1954, three years after an office was opened in Montreal. In 1969, the bank expanded its operations to Hong Kong. The bank bought 80% of precious metals refiner Valcambi in 1967, and the rest in 1980. However, the Valcambi subsidiary was subsequently divested.

In 1976, Credit Suisse acquired Schweizerische Bodenkreditanstalt, further bolstering its domestic operations. The bank became a member of the New York Stock Exchange in 1982, greatly expanding its trading capacity and product lines. In 1989, CS Holding became the parent company of Credit Suisse.

First Boston Corp.

First of Boston Corp. was created in 1932 as the investment banking subsidiary of the First National Bank of Boston. In 1933, the Glass-Steagall Act in the United States forced all banks to separate their investment banking activities from traditional personal and commercial banking to ensure risky investment losses could not harm deposit-taking banks. The First National Bank of Boston in 1934 spun off First of Boston Corp., which was re-named First Boston Corp. Until 1969, First Boston was America's only publicly-traded major investment bank.

Credit Suisse' long association with the First Boston Corp. began in 1978 when the Credit Suisse’s 76%-owned subsidiary Credit Suisse et de White Weld took a 25% interest in First Boston Corp. in stock. Credit Suisse et de White Weld then named itself Financiére Crédit Suisse-First Boston, which was now 46% owned by Credit Suisse, 31% owned by First Boston Corp. and the rest by management and other minority holders.

Despite their long partnership, however, relationship between Credit Suisse and First Boston had been rocky. This could be partly blamed on the complex web of cross-holdings between all three companies: Credit Suisse, First Boston and CS First Boston. Managing all three separate but related businesses was cumbersome and worse still, they competed against each other.

After First Boston suffered severe losses in the 1987 Black Monday stock crash, a major restructuring in 1988 merged First Boston into CS First Boston, which was now 44.5% owned by a new parent company called CS Holding. However, business remained poor and by 1990, Credit Suisse had to pumped USD $300-million into CS First Boston, raising its stake to 73%. This marked the first time a foreign bank had obtained majority control over a major Wall Street underwriter.

Recent transaction(s):

  • In 1990, Credit Suisse bought Switzerland’s oldest bank, Bank Leu (founded 1755).
  • In 1993, Credit Suisse outbid rival Union Bank of Switzerland and bought Schweizerische Volksbank, the country's 5th largest bank, for CHF 1.6-billion (USD $1.1-billion).
  • In 1995, Credit Suisse bought Neue Aargauer Bank, a regional lender in Switzerland.
  • In 1996, reports surfaced that both Switzerland and its banks collaborated with Nazi Germany during World War II, and that dormant bank accounts left behind by Holocaust victims were never disclosed to their potential survivors and estates. Following a firestorm of protests from Jewish leaders and threats from the U.S. to boycott Swiss banks, the Swiss National Bank, Credit Suisse, SBC and UBS contributed CHF 270-million into the Humanitarian Fund for the Victims of the Holocaust. Then in 1998, Credit Suisse and UBS further agreed to a USD $1.25-billion (CHF 1.8-billion) settlement with the claimants of the Holocaust class-action lawsuits.
  • In 1997, parent company CS Holding was renamed Credit Suisse Group.
  • In 1997, Credit Suisse bought Swiss insurer Winterthur Insurance Co. for CHF 13.37-billion (USD $8.8-billion). Following years of mediocre profitability, Credit Suisse sold Winterthur to France's AXA S.A. in 2006.
  • Also in 1997, Credit Suisse bought Barclays de Zoete Wedd’s (BZW) European investment banking operations from Barclays plc for about GBP 100-million.
  • In 1998, Credit Suisse bought Brazil's Banco de Investimentos Garantia SA for USD $675-million.
  • In 1999, Credit Suisse bought Warburg Pincus Asset Management from Warburg, Pincus & Co. for USD $650-million, gaining USD $22-billion in assets under management.
  • In 2000, Credit Suisse bought U.S. investment bank Donaldson, Lufkin & Jenrette Inc. (DLJ) from France's AXA S.A. for USD $13.6-billion. The purchase was ill-timed, as a major global bear market started in 2001.
  • In 2003, Credit Suisse sold its British non-life insurance operations, Churchill, to the Royal Bank of Scotland for GBP 1.1-billion. Churchill had 7.5-million clients.
  • Also in 2003, Credit Suisse sold Winterthurs’s Italian operations to Unipol Assicurazioni SpA for Eur 1.46-billion.
  • In 2003, Credit Suisse sold its Pershing unit to the Bank of New York Co. for USD $2-billion. Pershing also repaid a USD $480-million subordinated loan to Credit Suisse.
  • Also in 2003, Credit Suisse sold its precious metals refiner Valcambi S.A. to European Gold Refineries Holding S.A. (EGR).
  • In 2005, Credit Suisse First Boston was fully integrated into Credit Suisse.
  • In 2006, Credit Suisse sold its insurance subsidiary Winterthur to France’s AXA S.A. for CHF 12.3-billion.
  • In 2007, the bank’s four private banks Clariden, Bank Leu, Bank Hofmann and Banca di Gestione Patrimoniale were consolidated into the new Clariden Leu.
  • In 2007, Credit Suisse bought 50% of Brazilian asset manager Hedging-Griffo, for BRL 635-million (CHF 421-million, USD $364-million).
  • Following heavy losses suffered during the global credit meltdown in 2007 (loss of CHF 7.76-billion) and 2008 (loss of CHF 8.2-billion), Credit Suisse raised CHF 10.4-billion of fresh capital in October 2008 by issuing treasury shares, convertible bonds and other hybrid securities.
  • In December 2008, Credit Suisse sold part of its Global Investors asset management business in return for up to 23.9% of the enlarged Aberdeen Asset Management. Value of the asset swap was estimated to be GBP 250-million (CHF 381-million).
  • In December 2010, Credit Suisse sold a soured commercial property loan portfolio with a book value of USD $2.8-billion for USD $1.2-billion to Apollo Management.

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