Swiss Bank Corporation
Swiss Bank Corporation
Incorporated: 1872 as the Easier Bankverein
Assets: SFrl54.ll billion (US$102.64 billion)
Stock Index: Basel Zurich Geneva Lausanne Berne Neuchatel St. Gall
From its founding by six private bankers in Basel more than a hundred years ago, the Swiss Bank Corporation has grown to become the second-largest bank in Switzerland and one of the largest financial institutions in the world. The bank attributes this success to three major factors: its corporate mission, which emphasizes the development of those business relationships with the greatest profit-making potential; the strength and flexibility with which it conducts its banking activities; and an uncanny sense of opportunity and luck, balanced with traditional Swiss conservatism. Not even the sinking of the Titanic could steer the bank off its steady course; two senior managers who were passengers on that ship survived the disaster.
The bank was first established as the Basler Bank-Verein in 1854 by a group of six private bankers in response to the growing credit needs of Switzerland’s railroad and manufacturing industries. The bank’s founders initially resisted joint-stock ownership because they wanted to keep the bank small and manageable, but they gradually yielded this position in the early 1870s as a number of new competitors entered the market and as colleagues in Germany and Austria increased pressure to have a large bank headquartered in Basel. And so in 1872 the Basler Bankverein was established as a joint-stock company.
In its first year operation the Basler Bankverein it was nominated the official Swiss bank of issue for the French national loan, for financing the growing textile and metal industries in France. However, beginning in 1873, the bank encountered several major setbacks. The Vienna stock exchange collapse, falling prices, and many bad loans forced the bank to forego issuing dividends to shareholders in favor of establishing a loss reserve. With this reserve, it was able to withstand an economic slowdown and problems in the domestic railway industry which occurred later that decade.
Over the next 20 years, the bank experienced a series of ups and downs which paralleled fluctuations in the Swiss industry and trade. Nevertheless, the bank played a significant, although restrained, role in establishing new industrial companies within Switzerland as well as new banks in Italy and Belgium.
After merging with the Zürcher Bankverein in 1895, the bank changed its name to the Basler and Zürcher Bankverein. Upon acquiring the Schweizerische Union-bank in St. Gall and the Basler Depositen-Bank in 1897, the bank began operating under its present name, Schweizerischer Bankverein, or Swiss Bank Corporation, with offices in St. Gall and Zurich in addition to the headquarters in Basel. Although a new internal structure was set up to offer autonomy to each office through three local board committees managed by one central group, this system proved too difficult to manage on a uniform basis and was later revised so that the central committee was involved more directly in the daily affairs of each office.
As the bank attempted to resolve these operational issues, it continued to grow both through its participation in Switzerland’s industrial growth and foreign trade, and through the acquisition of smaller, weaker financial institutions. It also supported the government’s efforts to buy back the country’s major railroads from foreign investors during the early 1900s.
This activity came to an abrupt halt in 1914 with the advent of World War I as the bank supported neutral Switzerland’s wartime economy and aided the country’s war effort. Unlike other banks, which incurred major losses abroad during this period, Swiss Bank Corporation survived the war’s financial pressures in spite of restricted access to its assets held outside the country. One noticeable effect of the war on the bank, however, was the collapse of several industrial firms in which the bank had held a major interest.
Beginning in 1924, the bank took an active role in rebuilding the international economic system by extending loans to other countries. It also served as a depository of foreign funds for investors threatened by inflation and political instability in their own countries. In 1929 the bank assisted in locating the newly formed Bank for International Settlements in Basel. This body was formed to mediate the payment of war-related reparations.
As the country struggled to overcome the Depression in the aftermath of the stock market crash in New York and the devaluation of the Swiss franc in 1936, the bank was forced to draw upon its already strained resources to help other institutions stay afloat. When it became apparent that the world was about to fall victim to another major war, the bank received a large influx of foreign funds for safekeeping and also rallied its own resources in preparation for the conflict by opening an agency in New York in 1939 to store assets in case of an invasion. As traditional business fell off once the war began, the Swiss government became the bank’s largest customer as funds were directed toward the country’s defense. This war had a predictable effect on dividend payments and earnings, but Swiss Bank endured as best it could.
Dr. Rudolf Speich became chairman in 1944, soon to face the problems and opportunities of the postwar period. At the end of World War II, Swiss Bank’s assets were nearly SFr2 billion. Once postwar finances had been sorted out, the bank turned its attention to financing private rather than state industry and to rebuilding the shattered economies of Europe. By 1947 Swiss Bank was lending money abroad again, and between 1945 and 1948 it contributed some SFr2.5 billion to Switzerland’s efforts to help its neighbors rebuild.
By 1958 the bank’s assets had doubled, to SFr4 billion, and under Samuel Schweizer, who became chairman in 1961, they had doubled again by 1964. Fueling this growth were a growing number of branches, both domestic and international. In addition to the London banking office, which had opened in 1898, and the New York operation that began in 1939, the bank opened offices all over the world. In the United States, offices were opened in San Francisco in 1965 and Los Angeles in 1968. In 1965 it became one of the first European financial institutions in Tokyo.
During the 1970s, due to heavy competition within Switzerland, the bank focused on the business of multinational corporations based in the United States and Canada, expanding its offices to several other North American cities. In 1972, it formed the Swiss Bank and Trust Corporation Ltd. on Grand Cayman Island, followed by financial services subsidiaries in Hong Kong in 1973, in London in 1974, and in Luxembourg a year later.
A notable exception to this global focus was Swiss Bank’s participation in a major restructuring of the Swiss watchmaking industry, which was suffering from competition from technologically superior Japanese companies. Swiss Bank and some of its competitors extended new credit to the nation’s watchmakers, enabling them to use quartz technology in watches rather than obsolete mechanical designs.
In 1978, the bank appointed a new chairman, Hans Strasser, to lead it into a new decade. Strasser was the first high-ranking Swiss banking official to come from the working class; he had been an employee of the bank for over 30 years. Strasser was instrumental in shifting some of the overall decision-making responsibility from the bank’s central management to its head branches and their respective subsidiaries. At the same time, management worked to establish a better balance between domestic and international banking activity, temporarily restraining the development of new business opportunities by the foreign offices, and, in particular, decreasing the number of less profitable interbank loans until business with private and commercial customers increased at home.
During the 1980s, the bank also played a significant part in protecting Swiss interests in its existing international business affairs. In 1982, the bank formed SBC Portfolio Management International, Inc. in New York. In addition, as one of the world’s largest private gold dealers, it joined with the country’s two other leading banks, the Union Bank of Switzerland and the Credit Suisse, to form Premex A.G., a brokerage house designed to strengthen Swiss involvement in the international precious metals market, and in particular to reinforce gold bullion trading activity in Zurich, which had recently begun to falter.
Three years later, the three banks were allies once again in refusing to participate in Swiss franc note issues lead-managed by the Swiss subsidiaries of two Japanese banks, the Long-Term Credit Bank of Japan and Industrial Bank of Japan. Basing their protest on claims of unequal treatment of foreign banks by the Japanese government, the Swiss banks argued that since they were not permitted to underwrite securities or join the bond underwriting syndicate in Japan, Japanese banks should face similar restrictions in Switzerland.
Toward the end of 1985, in another minor incident, but one with political ramifications, the Supreme Court of Switzerland ordered the bank to release information to Scotland Yard about an account that had allegedly been used to deposit a $2.9 million ransom paid in an Irish Republican Army blackmail scheme two years earlier. The bank claimed that providing this information would endanger the customers involved, but the court held that it was in the country’s best interests for the bank to cooperate with the British government, although it required that the information supplied by the bank be used only in prosecuting the IRA.
In 1986, the growing problem of international debt facing the world’s financial institutions reached a critical juncture. In an attempt to keep Mexico from defaulting on its foreign loans, an international group of bank creditors attempted to negotiate a US$1.5 million bridge loan to Mexico which would allow the country to fulfill its interest obligations on existing debt until a longer-term financing package was arranged. Alone in its resistance to this plan, Swiss Bank proposed instead that Mexico be permitted to miss upcoming interest payments, which would then be added on to the amount of the present loan. Under pressure from the International Monetary Fund and the other banks involved, Swiss Bank eventually agreed to participate in the original lending plan. Two years later, a more satisfactory agreement enabled the banks to exchange their existing Mexican loans for $10 billion in new higher-yield 20-year bonds issued by the Mexican government.
At the end of 1986 the bank’s investment banking operation added a branch in the Netherlands to its existing network of offices in London, Tokyo, New York, Frankfurt, Melbourne, and Zurich, providing more direct Swiss access to Dutch equities and bonds in the guilder market. This expansion was followed in 1987 by the acquisition of Savory Milln, a London-based securities broker, and Banque Stern, a French investment bank, as well as taking a controlling interest in the Paris brokerage house of Ducatel-Duval. These takeovers were in Swiss Bank Corporation’s tradition of international expansion, necessary in a small country with a limited—and crowded—domestic banking market.
Worldwide competition was inevitable and in 1988 the Swiss banking community as a whole attempted to make up ground lost to more aggressive American, Japanese, and British financial rivals. No longer able to remain cautious and grow solely by offering foreign investors the stability of the Swiss economic system and the tax advantages of a Swiss account as it had in the first half of the century, Swiss Bank attempted to further strengthen its international portfolio and solidify its U.S. presence with the purchase of a multiple-story office tower in New York for its North American headquarters.
In 1988 in the midst of these attempts to redefine its business strategy, the bank, along with the Union Bank of Switzerland and Credit Suisse, found itself embroiled in a $1 billion money-laundering scheme operated by a Lebanese-Turkish drug syndicate. While the bank did hold accounts for some of the people involved, it denied that it had acted in violation of Swiss banking laws. And in early 1989, Swiss Bank was excluded from participating in a C$500 million issue of Eurobonds because the Canadian government suspected it of conducting business with South African authorities.
The bank went on the offensive beginning in February, 1989 when, as one of the underwriters of Swiss franc bonds issued by RJR Nabisco, it attempted to force the company to redeem these notes because of an impending buyout by Kohlberg Kravis Roberts and Company. According to the provisions of the original bond issue, the bondholders were entitled to the return of their investment in the event of a corporate reorganization. The lawsuits filed by the bank on behalf of its bondholders were settled over the next two months before the eventual sale of the company.
Today, the Swiss Bank Corporation operates 219 domestic branches and 15 abroad, in addition to its 27 representative offices worldwide, including one in Seoul, which was the first established there by a Swiss bank. With a broad network of European and international offices and visibility on the world’s major stock exchanges, the bank, under its current chairman, Franz Galliker, continues to work to remain a leading full-service universal bank.
Swiss Deposit and Creditbank; Banque Procrédit S.A.; Bank Finalba Ltd.; Bank Ehinger & Co. Ltd.; Armand Von Ernst & Co. Inc.; SBV Finance Ltd.; Factors Ltd.; Special Financing Ltd.; Indelec Holding Ltd.; Industrie-Leasing AG; IL Immobilien-Leasing AG; Aucreda AG; Schweizerischer Bankverein (Deutschland) AG; Frankfurter Münzhandlung GmbH; Société de Banque Suisse (Luxembourg) S.A.; Banque de Placements et de Crédit (Monte Carlo); Swiss Bank Corporation (Canada); Swiss Bank Corporation (Jersey) Ltd.; Swiss Bank Corporation (Overseas) Ltd. (Nassau); Swiss Bank Corporation (Overseas) S.A. (Panama); Swiss Bank & Trust Corporation Ltd. (Grand Cayman); SBC Finance (Cayman Islands) Ltd.; S.B.C. Australia Ltd.; SBC Portfolio Management International Inc. (New York); SBC Portfolio Management International Ltd. (London); SBC Portfolio Management Ltd. (Zurich); Schweizerischer Bankverein Kapitalanlagegesellschaft mbH (Frankfurt); SBC Investment Services Ltd. (Dublin); SBC Portfolio Management International K.K. (Tokyo); SBCI Futures Inc. (New York); SBCI Swiss Bank Corporation Investment Banking Inc. (New York); SBCI Swiss Banking Corporation Investment Banking N. V. (Amsterdam); SBCI Hong Kong Ltd.; SBCI Holding (Basle); SBCI Securities (Asia) Ltd.; SBC Securities Ltd. (Hong Kong); Métaux Précieux S.A. Metalor; SERIMO Immobiliendienste AG; Société de Constructions de Gérances et de Placements SOCOGEP; Swiss Auditing and Fiduciary Company; Systor AG; Ideal Job conseils en personnel S.A.; TRANSPLAN Ltd. (50%); HIMAC AG für Verwaltung von Anlagefonds; SAGEPCO S.A. de Gérances et de Placements collectifs; INTERFONDS International Investment Trust Company; Société Internationale de Placements, SIP (50%); Swiss Bank Corporation US-Dollar Money Market Fund Management Company.
Bauer, Hans. “The Eventful Hundred Years of the Swiss Bank Corporation,” Basel, Swiss Bank Corporation, 1972.