Bank Leu
Encyclopedia
Bank Leu AG was a Swiss
private bank
that existed from 1755 to 2007. Headquartered in Zurich
, it was a subsidiary of Credit Suisse
from 1990. In 2007, it was merged with that company's other private banking units as Clariden Leu
. At the time, it was the oldest bank in Switzerland.
The bank was founded in 1758 as Leu et Compagnie, named after its founder, Johann Jacob Leu, who later became mayor of Zurich. Originally a state-owned bank, it was privatized in 1798 after Napoleon conquered Switzerland; the bank's officials did not want its assets to be taken over by Napoleon's new client state, the Helvetic Republic
. In 1854, it incorporated as Leu & Co. after more than a century as a limited partnership
. It became a public limited company
in 1969.
Despite having many distinguished customers over the years (at one point, it was Maria Theresa's banker), two major scandals in the 1980s eventually cost the bank its independence.
to handle most of his insider trades
. From 1981 to 1986, Levine built up his account to over $10 million USD
, trading on information he acquired based on his work as an investment banker.
Levine took advantage of the Bahamas' strict bank secrecy
laws (which forbid the disclosure of any information about a customer's banking relationship) to cloak his activities. Bank Leu itself had a long tradition of secrecy, and its Bahamian branch had a reputation for accepting deposits from anyone, no questions asked.
However, unknown to Levine, his account manager in Nassau
and several bank employees (including the bank's manager) copied several of his trades in order to make their own profits off Levine's information. This practice, called "piggybacking," was not illegal in and of itself unless the piggybacker knows or has reason to know that the trader he is copying is acting on illegally obtained information. However, Bank Leu officials knew soon after Levine opened his account that he was trading almost entirely on inside information. Even without this to consider, the practice was contrary to Bank Leu policy. As a result of their piggybacking, Bank Leu employees made a tidy profit of their own off Levine's trades.
More seriously, Bank Leu steered a large number of trades through a broker at Merrill Lynch
's office in Caracas
. He himself piggybacked the trades for his own benefit, and the volume led one of his colleagues to get suspicious. The colleague wrote a letter to Merrill Lynch's compliance unit, whose internal investigation led to Bank Leu. Unfortunately, the broker had by this time moved onto another company, and there was no way for Merrill Lynch to pierce the offshore veil. The matter was thus passed on to the Securities and Exchange Commission.
Bank officials suggested that Levine come up with reasons to justify the trades. However, they also forged or destroyed many documents related to Levine's activity--thus opening them to charges of obstruction of justice
. Their story fell apart when noted attorney Harvey Pitt
, whom the bank had retained, noticed a huge gap between the actual statements of the bank's managed accounts and the omnibus records. At that point, the bank decided to cooperate with the SEC.
Bahamian Attorney General Paul Adderly issued an opinion that stock trading was separate from normal banking transactions, and thus was not subject to the bank secrecy laws. The bank was thus free to reveal Levine's name, and he was arrested soon afterward.
Despite the bank's cooperation, Bahamian regulators forced corporate headquarters in Zurich to fire the entire board of the Bahamian branch as a condition of being allowed to stay in business in the Bahamas.
was in the midst of a bidding war for the much larger Distillers Company. In the closing stages, Guinness' stock rose 25 percent--which was unusual, since the stock of the acquiring company usually falls in a takeover situation. Guinness paid several people and institutions, most notably American arbitrageur
Ivan Boesky
, about $38 million USD to buy $300 USD million worth of Guinness stock. The effect was to increase the value of its offer for Distillers, whose management favored merging with Guinness.
In the course of the investigation, it emerged that Bank Leu was involved in half of the purchases. Two of Guinness' directors signed under-the-table agreements in which Bank Leu subsidiaries in Zug
and Lucerne
bought 41 million Guinness shares. Guinness secretly promised to redeem the shares at cost, including commissions. To fulfill its end of the bargain, Guinness deposited $76 million with Bank Leu's Luxembourg
subsidiary.
s (roughly $50 million USD).
Bank Leu was reorganized in 1997 as an "independent private bank," integrating its branch network in Zurich as well as its corporate banking business with Credit Suisse. In 2007, it merged with Credit Suisse Fides and Credit Suisse's other three private banks—Clariden, Bank Hofmann, and Banca di Gestione Patrimoniale—to form Clariden Leu
.
Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
private bank
Private banking
Private banking is banking, investment and other financial services provided by banks to private individuals investing sizable assets. The term "private" refers to the customer service being rendered on a more personal basis than in mass-market retail banking, usually via dedicated bank advisers...
that existed from 1755 to 2007. Headquartered in Zurich
Zürich
Zurich is the largest city in Switzerland and the capital of the canton of Zurich. It is located in central Switzerland at the northwestern tip of Lake Zurich...
, it was a subsidiary of Credit Suisse
Credit Suisse
The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
from 1990. In 2007, it was merged with that company's other private banking units as Clariden Leu
Clariden Leu
Clariden Leu is a Swiss private bank based in Zurich, Switzerland. Following the merger of the four Credit Suisse private banks: Clariden Bank, Bank Leu, Bank Hofmann, and BGP Banca di Gestione Patrimoniale together with the securities dealer Credit Suisse Fides on January 26, 2007, Clariden Leu is...
. At the time, it was the oldest bank in Switzerland.
The bank was founded in 1758 as Leu et Compagnie, named after its founder, Johann Jacob Leu, who later became mayor of Zurich. Originally a state-owned bank, it was privatized in 1798 after Napoleon conquered Switzerland; the bank's officials did not want its assets to be taken over by Napoleon's new client state, the Helvetic Republic
Helvetic Republic
In Swiss history, the Helvetic Republic represented an early attempt to impose a central authority over Switzerland, which until then consisted mainly of self-governing cantons united by a loose military alliance, and conquered territories such as Vaud...
. In 1854, it incorporated as Leu & Co. after more than a century as a limited partnership
Limited partnership
A limited partnership is a form of partnership similar to a general partnership, except that in addition to one or more general partners , there are one or more limited partners . It is a partnership in which only one partner is required to be a general partner.The GPs are, in all major respects,...
. It became a public limited company
Public limited company
A public limited company is a limited liability company that sells shares to the public in United Kingdom company law, in the Republic of Ireland and Commonwealth jurisdictions....
in 1969.
Despite having many distinguished customers over the years (at one point, it was Maria Theresa's banker), two major scandals in the 1980s eventually cost the bank its independence.
U.S. insider trading scandal
Bank Leu's Bahamian subsidiary, Bank Leu International, was used by Dennis LevineDennis Levine
Dennis B. Levine was a prominent player in merger and acquisition business and the Wall Street insider trading scandals of the mid-1980s...
to handle most of his insider trades
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. From 1981 to 1986, Levine built up his account to over $10 million USD
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
, trading on information he acquired based on his work as an investment banker.
Levine took advantage of the Bahamas' strict bank secrecy
Bank secrecy
Bank secrecy is a legal principle in some jurisdictions under which banks are not allowed to provide to authorities personal and account information about their customers unless certain conditions apply...
laws (which forbid the disclosure of any information about a customer's banking relationship) to cloak his activities. Bank Leu itself had a long tradition of secrecy, and its Bahamian branch had a reputation for accepting deposits from anyone, no questions asked.
However, unknown to Levine, his account manager in Nassau
Nassau, Bahamas
Nassau is the capital, largest city, and commercial centre of the Commonwealth of the Bahamas. The city has a population of 248,948 , 70 percent of the entire population of The Bahamas...
and several bank employees (including the bank's manager) copied several of his trades in order to make their own profits off Levine's information. This practice, called "piggybacking," was not illegal in and of itself unless the piggybacker knows or has reason to know that the trader he is copying is acting on illegally obtained information. However, Bank Leu officials knew soon after Levine opened his account that he was trading almost entirely on inside information. Even without this to consider, the practice was contrary to Bank Leu policy. As a result of their piggybacking, Bank Leu employees made a tidy profit of their own off Levine's trades.
More seriously, Bank Leu steered a large number of trades through a broker at Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
's office in Caracas
Caracas
Caracas , officially Santiago de León de Caracas, is the capital and largest city of Venezuela; natives or residents are known as Caraquenians in English . It is located in the northern part of the country, following the contours of the narrow Caracas Valley on the Venezuelan coastal mountain range...
. He himself piggybacked the trades for his own benefit, and the volume led one of his colleagues to get suspicious. The colleague wrote a letter to Merrill Lynch's compliance unit, whose internal investigation led to Bank Leu. Unfortunately, the broker had by this time moved onto another company, and there was no way for Merrill Lynch to pierce the offshore veil. The matter was thus passed on to the Securities and Exchange Commission.
Bank officials suggested that Levine come up with reasons to justify the trades. However, they also forged or destroyed many documents related to Levine's activity--thus opening them to charges of obstruction of justice
Obstruction of justice
The crime of obstruction of justice, in United States jurisdictions, refers to the crime of interfering with the work of police, investigators, regulatory agencies, prosecutors, or other officials...
. Their story fell apart when noted attorney Harvey Pitt
Harvey Pitt
Harvey Pitt was the 26th chairman of the U.S. Securities and Exchange Commission , serving from 2001-2003. He led the SEC in restoring the U.S...
, whom the bank had retained, noticed a huge gap between the actual statements of the bank's managed accounts and the omnibus records. At that point, the bank decided to cooperate with the SEC.
Bahamian Attorney General Paul Adderly issued an opinion that stock trading was separate from normal banking transactions, and thus was not subject to the bank secrecy laws. The bank was thus free to reveal Levine's name, and he was arrested soon afterward.
Despite the bank's cooperation, Bahamian regulators forced corporate headquarters in Zurich to fire the entire board of the Bahamian branch as a condition of being allowed to stay in business in the Bahamas.
Involvement in Distillers Company deal
In 1986, Guinness PLCGuinness
Guinness is a popular Irish dry stout that originated in the brewery of Arthur Guinness at St. James's Gate, Dublin. Guinness is directly descended from the porter style that originated in London in the early 18th century and is one of the most successful beer brands worldwide, brewed in almost...
was in the midst of a bidding war for the much larger Distillers Company. In the closing stages, Guinness' stock rose 25 percent--which was unusual, since the stock of the acquiring company usually falls in a takeover situation. Guinness paid several people and institutions, most notably American arbitrageur
Arbitrage
In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices...
Ivan Boesky
Ivan Boesky
Ivan Frederick Boesky is an American stock trader who is notable for his prominent role in a Wall Street insider trading scandal that occurred in the United States in the mid-1980s.-Life and career:...
, about $38 million USD to buy $300 USD million worth of Guinness stock. The effect was to increase the value of its offer for Distillers, whose management favored merging with Guinness.
In the course of the investigation, it emerged that Bank Leu was involved in half of the purchases. Two of Guinness' directors signed under-the-table agreements in which Bank Leu subsidiaries in Zug
Zug
Zug , is a German-speaking city in Switzerland. The name ‘Zug’ originates from fishing vocabulary; in the Middle Ages it referred to the right to ‘pull up’ fishing nets and hence to the right to fish.The city of Zug is located in the Canton of Zug and is its capital...
and Lucerne
Lucerne
Lucerne is a city in north-central Switzerland, in the German-speaking portion of that country. Lucerne is the capital of the Canton of Lucerne and the capital of the district of the same name. With a population of about 76,200 people, Lucerne is the most populous city in Central Switzerland, and...
bought 41 million Guinness shares. Guinness secretly promised to redeem the shares at cost, including commissions. To fulfill its end of the bargain, Guinness deposited $76 million with Bank Leu's Luxembourg
Luxembourg
Luxembourg , officially the Grand Duchy of Luxembourg , is a landlocked country in western Europe, bordered by Belgium, France, and Germany. It has two principal regions: the Oesling in the North as part of the Ardennes massif, and the Gutland in the south...
subsidiary.
Merger with Credit Suisse
Bank Leu's involvement in two major financial scandals seriously hurt its reputation, and in September 1990, it agreed to merge with Credit Suisse. Shortly after the merger closed, it came out that the credit officer of its Duebendorf office made fake loans in the name of legitimate clients, and then shared the proceeds with what was called "the Zurich financial underworld." The scheme cost Bank Leu an estimated 63 million CHFSwiss franc
The franc is the currency and legal tender of Switzerland and Liechtenstein; it is also legal tender in the Italian exclave Campione d'Italia. Although not formally legal tender in the German exclave Büsingen , it is in wide daily use there...
s (roughly $50 million USD).
Bank Leu was reorganized in 1997 as an "independent private bank," integrating its branch network in Zurich as well as its corporate banking business with Credit Suisse. In 2007, it merged with Credit Suisse Fides and Credit Suisse's other three private banks—Clariden, Bank Hofmann, and Banca di Gestione Patrimoniale—to form Clariden Leu
Clariden Leu
Clariden Leu is a Swiss private bank based in Zurich, Switzerland. Following the merger of the four Credit Suisse private banks: Clariden Bank, Bank Leu, Bank Hofmann, and BGP Banca di Gestione Patrimoniale together with the securities dealer Credit Suisse Fides on January 26, 2007, Clariden Leu is...
.