Author Archives: Cian Hennigan

Credit Suisse First Boston: Has the Ship Sailed?

On the 27th October, current Credit Suisse (CS) CEO Ulrich Körner announced to shareholders the latest restructuring plan his bank will undertake to regain the share value it has lost in the last few years. A series of scandals, stemming from poor risk management and permissive governance, has led to Credit Suisse’ share price falling close to 60% in the last year. The restructuring plan is the second attempt at stabilising the bank in the last two years, with the former CEO Thomas Gottstein announcing a similar plan before leaving due to pressure from scandals and poor performance.

The latest restructuring plan involves downscaling the investment bank significantly and focusing on Credit Suisse’ strong wealth and asset management businesses. The investment bank will look to offload capital in the volatile securities business and focus more on mergers and acquisitions as well as capital markets. The restructuring will require an additional $4 billion from investors. An external memo released described the investment bank reshuffle as “CS First Boston is expected to be more global and broader than boutiques, but more focused than bulge bracket players”. Critically, the investment bank will spin off into an independent firm, and will be renamed CS First Boston in a nostalgic bow to its banking history.

The recent flurry of scandals began in March 2020, when then CEO Tidjane Thiam was forced to resign after an investigation had found that the bank had hired private detectives to spy on the former head of wealth management Iqbal Kahn after he had left Credit Suisse for competitor UBS. Credit Suisse tried to downplay the event, but further investigation from the Swiss regulator FINMA found that there had been seven other incidents of spying between 2016 and 2019, and stated that there were serious organisational shortcomings within the bank.

A year later, Credit Suisse was marred in further controversy when British financier Greensill Capital collapsed. Greensill Capital was a supply chain finance firm, providing interim finance to businesses that need to pay suppliers in advance. This allowed banks such as Credit Suisse to sell Greensill’s debt to investors. The debt was advertised as low risk due to the fact that the underlying credit was insured. However, in March 2021, Greensill Capital collapsed after its insurance provider stopped underwriting its debt. This led to Credit Suisse freezing $10 billion worth of funds which were not fully repaid, losing a significant amount of money for clients in its asset management division.

The turmoil of March 2021 did not end there for Credit Suisse, when Archegos Capital Management, a family office and client of CS’ prime brokerage business defaulted. This led to losses of $5.5 billion for Credit Suisse, who were the worst affected of the bulge bracket banks by the default. Other investment banks had suffered losses, but these had been limited due to other banks to settling some of their positions with Archegos prior to the default. David Soloman, CEO of Goldman Sachs, stated that “We identified the risk early and took prompt action consistent with the terms of our contract with the client”, praising the risk management of his firm.

An independent report into the incident criticised Credit Suisse for focusing too much on short-term profit maximisation and not recognising the extreme risk-taking behaviour of Archegos. As a result of both losses, Credit Suisse had to raise an additional $1.9 billion in capital from investors to sure up its balance sheet.

The current Chair of CS, Axel Lehmann, admitted in May of this year that CS has failed to be proactive in risk management and that the scandals that have plagued the bank cannot be perceived as isolated incidents. The current restructuring plan intends to limit the sources of risk, but it is likely that a complete reform of how CS assesses risk is also necessary to limit any future scandals.

The use of First Boston to define the new “boutique bracket” investment bank is an interesting strategical move. First Boston was a US-based investment bank, which was first partially acquired by Credit Suisse in 1988, with the acquisition being completed fully in 1996. The bank was renamed Credit Suisse First Boston, commonly referred to as CSFB.

CSFB was a significant competitor in the late 90s, gaining success underwriting IPOs for many high-tech companies. CSFB operated as a bulge bracket investment bank and was officially integrated into Credit Suisse in 2005. Many banks were chasing the universal bank model at the time, making this integration sensible. The might of the original CSFB is in contrast with the new CSFB, which is being downsized to offer a more bespoke service than bulge bracket banks.

If the restructuring takes place as planned, it will be interesting to see how well the investment bank can attract clients due to its reduced offering of services. Direct comparisons in the market are Jeffries and PJT Partners, who have experienced sustained profitability in recent years. However, the detachment of the bank from consumer deposits will make CSFB’s balance sheet more unstable, and the significant losses experienced in 2021 cannot be repeated if the new investment bank is to survive.

CSFB made its name in the late nineties and early naughties, when high risk-taking was rewarded with significant profit and compensation. However, severe risk-taking has led the investment bank to its knees, and it is clear that prudent risk management is necessary. This new risk strategy of CSFB will need to be significantly different from that of the original investment bank.

The recent turmoil has left Credit Suisse vulnerable to a takeover, with rumours of a merger between CS and UBS intensifying. The actions of the new management team will likely decide the future of the bank. A repeat of previous missteps may lead to the vanishing of the Credit Suisse name, let alone First Boston.

Turkey: Where From Here?

In September, the Turkish Central Bank decided to cut its key interest rate by 100 basis points to 12%. This policy may come as a surprise to some though, as Turkey’s headline measure of inflation rose for the fifteenth consecutive month to 80.2%. Many central banks have increased interest rates in recent times in order to combat the high inflation figures within their respective domestic economies. However, Turkey’s central bank have pursued a different strategy. They have been cutting interest rates, a highly unconventional policy move that has not worked in stemming inflationary pressures. This policy misalignment is due to the political influence of President Recep Tayyip Erdoğan, who is a strong believer that high interest rates are morally incorrect and are the cause of rampant inflation, not the cure. Since 2018, Turkey has been dealing with high inflation rates, a weak Lira and a weak economy due to the policies enacted by Erdoğan, who has taken more control of monetary policy mainly in the form of interest rates.

Under this macroeconomic strategy, the Turkish Lira has significantly depreciated against the dollar. At the beginning of 2018, the US dollar exchange rate traded at just under four liras per dollar, but it now trades at around eighteen and a half against the dollar. Currency depreciation can help make exports become relatively cheaper in international markets, but the severe depreciation has offset any of the export growth benefits due to significant economic instability in Turkey. GDP per capita has declined in Turkey since 2013, falling from $12,600 to $9,600 in 2021. This fall in prosperity is a direct result of the lack of foreign investment in the emerging economy. Turkey has traditionally had a low saving rate, making private-sector funding reliant on international investment.

In June, Erdoğan made policy attempts to reduce Turkey’s stubbornly high bond yields, which had made borrowing costs extremely expensive for the government. Lenders in the nation were required to hold a certain amount of Turkish government bonds as collateral for its currency deposits. This led to a sharp fall in bond yields helping to reduce borrowing costs for the government but seriously exposed domestic banks to inflationary risk. The increase in demand for bonds was essentially driven by domestic compliance, not an uptake in foreign investment. In August, the central bank enacted new rules to try and reduce the interest rates offered to customers by domestic lenders. The higher the interest rate charged by the lender, the more Turkish government bonds the lender would have to hold, incurring more risk on the lender. This policy led to a further reduction in yields, with the 10-year yield falling to around 11%. The 10-year yield was above 20% prior to the original policy change in June.

Although inflation stands at over 80% year-on-year, the rate of growth of inflation has begun to cool, which has led to the Turkish government signalling that inflation will begin to decline. The reduction in inflation growth has been challenged by opposition parties and other economists, however. The reduction in inflation growth contradicts the data released by the Istanbul Chamber of Commerce (ICOC), an independent economic research group in Turkey. Although ICOC use a different methodology to calculate the inflation rate than TURKStat, the official statistics organisation in Turkey, their rate has closely tracked the official CPI rate over the last few years.

Erdoğan’s political influence on government agencies is extremely powerful in Turkey. He has sacked three central bank governors since 2019, a tendency that eliminates the political independence of Turkey’s central bank. In June of this year, Bloomberg reported that the Head of Consumer Pricing at Turkstat, Mustafa Teke, had stepped down from his role with no explanation as to why. This followed from the replacement of TURKStat’s president in January, whose tenure did not last a year. Statistical tampering by a government is not a novel situation. Greece falsified their GDP deficits in 2010 to calm bond markets prior to the European Debt crisis. Andreas Georgiou, the president of their statistical agency at the time, leaked the correct GDP forecasts to Eurostat in a rogue move that subsequently upset Greek authorities. In 2017, he was sentenced to two years in prison for a ‘breach of duty’ and remains in exile in the US today.

The Turkish general election is due to take place in May next year, which makes cooling rampant inflation a key objective for the incumbent Erdoğan to hold power. Although official figures show inflation beginning to cool, many investors may doubt the legitimacy of the figures and any major recovery in the Turkish economy in 2023. The various policies of Erdoğan have not managed economic success thus far but may remain, as the authoritarian leader’s AKP party remain ahead in opinion polls. It is hard to see where the light at the end of the tunnel is for one of the world’s largest emerging economies.

Budget 2023: An Overview

The Budget 2023 is one of the most significant budgets in years. The significant tax surplus received
by the exchequer this year is being used to ease the cost of living crisis for those who need it most.


Weekly Social Welfare payments will increase by €12 for all recipients, as well as
those with a State pension. There has also been an increase in the number of Lump Sum
payments, such as double child benefit being handed out in November as well as an increase
in Christmas payments for those on the Disability allowance and Living Alone allowance.


The government has increased the level for paying 40% income tax from €36,800 to
€40,000. This move will help middle income earners take home more money, to alleviate
some of the cost of living pressures. The second USC bracket (2%) has also been increased
from €21,295 to €22,920.


In a direct response to the energy crisis, the government has committed to giving
out €600 in electricity credits during the winter months. The first instalment will be handed out
before Christmas, with the other two coming in the New Year.


The government is set to introduce a tax credit worth €500 for renters; as rents
have continued to rise significantly in the country. They have also introduced a Vacant Home
Tax, to be placed on residential property that is occupied for less than 30 days in a 12
month period. This policy will hopefully encourage more efficient land use.


College fees will be cut by €1000 in a once-off reduction to help alleviate
inflationary pressures, as well as the SUSI grant being increased by 10-14% in September


Free contraception will be available for all women between the ages of 16-30.