The last rip-off from Credit Suisse
David Mathers was CFO of the big bank for 13 years. He turned it into a house of cards with 1000 sub-companies and ended up being the one who earned the most.
Ten days ago, when Sergio Ermotti held a joint town hall meeting for the management of UBS and Credit Suisse for the first time, even the veteran CS bankers were shocked. Ermotti drew the picture of a nested group in which everything and everything could be hidden. Today, Credit Suisse is made up of more than 1,000 sub-companies. For comparison: UBS “only” has around 300 sub-companies.
The box structure that turned out to be a house of cards, is the work of David Mathers, the bank’s longtime chief financial officer. Mathers wasn’t just CFO, he was chief IT officer and CEO of CS International, where all the tricky business was done.
Mathers was the only one within CS who had an overview and knew what the financial situation really looked like until just before the end. He earned a legendary reputation for making the bank look good, even when it wasn’t anymore. That’s why everyone who was CEO “under him” also relied on the British: Brady Dougan, Tidjane Thiam, Thomas Gottstein and, for a short time, Ulrich Körner.
The costs disappeared in the balance sheet
A trick in which Mathers according to the unanimous statements of several senior CS managers the master is was activating costs. He systematically capitalized all IT projects in the balance sheet, along with the vast sums of consultant fees they caused. This had the effect that the costs did not initially affect the profit, the result was glossed over and the bonuses flowed.
Nobody cared that the items would have to be written off in the future, but the result was that the bank pretended to have an operational strength by 2020 that it no longer had for a long time. As for IT, yes CS had to write off hundreds of millions of francs last year. But that’s not all, UBS has to write off software for 2 billion dollars again during the takeover.
The activation trick wasn’t just limited to IT. For example, CS had activated pension fund assets of $4.5 billion, similar to what Swissair had done shortly before the sinking. $3.8 billion of that was written off when it was acquired. Total considers UBS’s assets of $28 billion to be airborne, according to recent releases. That is two-thirds of the reported equity of 45 billion Swiss francs.
Reserves dissolved and the future sold
The second trick Mathers mastered was selling anything of value. Just like real estate. According to American stock exchange rules (US GAAP), they had to be accounted for at acquisition cost. So they were sold with book profits in the billions.
This had consequences: In 2011, CS posted almost CHF 15 billion under “Properties and facilities”. Of this, the buildings and land accounted for almost 5 billion francs, the rest was spread over 5.4 billion francs for installations and 4.6 billion for software. Eleven years later it was still CHF 13 billion. Real estate and land account for 1.35 billion francs, the software 8.15 billion – as much as the market value of CS shortly before the takeover.
But it was not only houses that were sold, but also a lot of promising business. “Sell something” (in German: sell something) was the motto when business went badly again. And that’s what Mathers did in 2013, for example: the private equity business went to Blackstone, the ETF business to Blackrock, and the Customized Fund Investment Group (CFIG) to Grosvenor. All pearls, with which competitors like Partners Group earn a lot of money today, but at CS only a short-term book profit of a few hundred million and brought the managers their bonuses.
Mathers also had control over the allocation of costs and to the various divisions. The depreciation of the divisions could be controlled using an internal key. He used this to always make private banking and CS Switzerland look good. Why? The analysts evaluate these business areas with so-called multipliers on the profit. In private banking it is 12, in Swiss banks it is 10, and in corporate banking and investment banking it is significantly lower.
One disadvantage of these tricks is now obvious: the bank lost track of whether it was actually making money. And, as we now know, she didn’t. Ermotti put it in a nutshell in the “Town Hall”: CS causes costs of 15 billion francs and has revenues of 11 billion francs.
Internal warners shut down
Mathers was not without controversy. For example, risk manager Joe Oechslin repeatedly warned former CS boss Tidjane Thiam about uncovered risks in investment banking. But Thiam didn’t want to listen and sent him into the desert in early 2019. Even when Joanne Hannaford, who was deployed in 2022, wanted to change booking practices in IT, she ran up and had to play the game first, but Mathers was able to prevail.
According to insiders, it was only one realization from the Archegos debacle that cost Mathers his head: Because it was Mathers himself who set the risk limits in such a way that the loss of 5 billion dollars could occur. Oechslin made a comeback in 2022, but by then it was too late.
Mather’s dealings with regulators have been “nonchalant” to say the least. He didn’t think much of Finma: CS did not submit any reliable documents, deadlines were not met, and the bank responded to inquiries with excuses, as an insider says. The same can be seen in the bank’s correspondence with the US Securities and Exchange Commission (Read: «With megalomania in the sinking»), which ran directly through the CFO until his departure.
Mathers got the last bonus
Not only did Mather check the bank, he also didn’t forget his own wallet. So he was the only one who wasn’t paid like a Swiss manager, he ran under English regulation. Mathers flew in from London on weekdays. This had one decisive advantage: he received a significantly higher fixed salary than all other members of management. Thiam got 3 million fixed, Gottstein 2.5 million.
Mathers received 3.5 million francs and last year even 50,000 francs for just ten months. In addition, there are regular payments into the pension fund of around 300,000 francs, as much extra and a few hundred thousand francs in additional bonuses. In total, that was certainly 60 million francs in cash during Mather’s time at CS.
It seems downright grotesque that he was the only member of management to receive shares from a special bonus with which CS management wanted to secure a total of 54 million francs in 2020. Unfortunately were all targets missed and nobody got anything – except one. Ironically, Mathers, the chief financial officer, received his share, probably around 600,000 francs. As can be seen from the annual report, not because of hard numbers, but because of soft factors, precisely because he was considered an English manager.
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