Mozambique: Credit Suisse and its Backers Pay the Price for Secret Debt and Other Frauds

From 2012 Credit Suisse (CS) bribed senior Mozambicans to take a totally useless $2bn loan, which helped to save the bank - one of the very big global banks and supposedly respectable because it was regulated by Switzerland. The chart below shows the share price (in Swiss francs). The falling share price in 2012 shows the bank was in trouble and pressure was on staff to lend money, and it was clear that no one would ask how it was done. And it worked - the share price rose significantly after the Mozambique loans.

Even before the Mozambique loans CS had a record. Traders had been caught overvaluing securities by $3bn to increase their bonuses, violating US and EU exchange controls, money laundering for cocaine dealers, and helping US citizens file false tax returns. But the success of the Mozambique secret loans was followed by even bigger deals, including lending $10bn to the UK firm Greensill Capital and $5.5 bn to the US Archegos Captiial, both of which collapsed in 2021. The Archegos founder had been found guilty of securities fraud, which was known to Credit Suisse before the loan, while Greensill was already known to be using questionable accounting methods.

Through all of this, CS continued to be backed, most notably by the Norwegian sovereign wealth fund, which held 5% of the bank's shares and rejected pressure from campaigners to withdraw from the bank. In 2013 CS was valued at $50bn and shares were worth CHF 25, falling to half that by 2017. UBS bank last month bought CS for for $3.2 bn, CHF 0.76 per share. By failing to listen, the Norwegian wealth fund lost more than $1bn.

It could be argued that CS was set on this path by the international community after the 2008 economic crash. It was clear there was not enough production and consumption. The obvious thing to do was give money to everyone who would use it to buy goods and services, which would stimulate the economy. Instead central banks developed what was called "quantitative easing", in which money was given to banks to encourage lending and investment.

Giving the money to banks instead of people meant there was more money in circulation than could be easily used, which led to "loan pushing" - banks pressing businesses and governments to take loans they did not need, and making very risky loans. In the case of Credit Suisse in Mozambique, this was done corruptly, by bribing senior Mozambican officials.

Another effect was to move more money into speculation, hedge funds, etc. This pushed up the price of assets, notably property. That led to building booms in many cities, including Maputo, where apartments were purchased, often with illegal money, and left empty as an investment.

But the most important impact is that the money went to the already very rich, increasing further the gap between rich and poor across the world. If some of the money had been given to Mozambicans and other Africans to spend, instead of to banks to make corrupt and speculative investments, the result would have been very different.

This article originally appeared on All Africa

Photo: Reuters