One Man Helped Credit Suisse Make Billions From

Babak Dastmaltschi was the go-to banker for some of Russia’s wealth­i­est indi­vid­u­als but then war and sanc­tions brought the busi­ness to a grind­ing halt.

The Dilbar is a mar­itime exer­cise in excess. Commissioned by Russian bil­lion­aire Alisher Usmanov, the largest super-yacht in the world boasts four cas­cad­ing bal­conies, two heli­pads and the biggest inte­ri­or pool of its kind. German ship­yard Lürssen calls it one of the most chal­leng­ing yachts it ever completed.

Paying for the float­ing palace, esti­mat­ed to have cost more than $US600 mil­lion ($847 mil­lion), required sim­i­lar scale. The 512-foot behe­moth was financed with the help of a $US300 mil­lion loan by Credit Suisse, engi­neered by a man who spent the last two decades turn­ing him­self into the go-to banker for the wealth­i­est Russians: Babak Dastmaltschi.

window.tgpQueue.add('tgpli-64a7dd4cc731f')Russian bil­lion­aire Alisher Usmanov’s Dilbar supery­acht cov­ered in white tar­pau­lin in a Hamburg dry dock. It has been impound­ed by German author­i­ties. Bloomberg

The 62-year-old drove a prof­itable niche for Credit Suisse tend­ing to the needs of the super-rich: At its peak, the Swiss lender man­aged more than $US60 bil­lion belong­ing to wealthy Russians, reg­u­lar­ly bring­ing in $US500 mil­lion to $US600 mil­lion in rev­enues a year, say peo­ple famil­iar with the mat­ter, who asked not to be iden­ti­fied dis­cussing pri­vate information.

Other tycoons who worked with Dastmaltschi includ­ed Roman Abramovich, Viktor Vekselberg, Oleg Deripaska, Andrey Melnichenko and Mikhail Fridman, they said.

“Credit Suisse has had a very proac­tive approach to recruit­ing rich Russians, using their con­nec­tions with the Russian elite,” says Kern Alexander, the chair of law and finance at the University of Zurich.

Now that long, lucra­tive run has come to a sud­den stand­still. Russia’s inva­sion of Ukraine in February has turned Usmanov and dozens of oth­er rich Russians into eco­nom­ic pariahs.

Many have been sanc­tioned by the European Union and the UK, with var­i­ous assets – from prop­er­ty to foot­ball clubs to lux­u­ry yachts – seized by author­i­ties. That’s left the bank’s Russia desk with lit­tle busi­ness oth­er than recur­ring fees from man­ag­ing cash trapped in frozen accounts.

It amounts to a notable hit to Credit Suisse’s key wealth busi­ness just as the firm embarks on a strate­gic revamp aimed at mov­ing past years of scan­dals and poor risk man­age­ment. The new strat­e­gy calls for lean­ing even more on cater­ing to the rich and less on the volatile busi­ness of trad­ing, where rev­enues fell by half in the first quarter.

For Credit Suisse, already strug­gling to turn a page on scan­dals that have cost it bil­lions of dol­lars and incal­cu­la­ble rep­u­ta­tion­al dam­age, los­ing a busi­ness that rivalled its Middle East pres­ence is yet anoth­er pot­hole in the road to recovery.

Complicating mat­ters for the bank and the rain­mak­er, they find them­selves enmeshed in a sep­a­rate cost­ly legal case involv­ing a rogue banker and trans­ac­tions tied to wealthy clients – one that shows no signs of end­ing soon.

This sto­ry is based on inter­views with peo­ple close to Dastmaltschi and his work at Credit Suisse, who spoke on con­di­tion of anonymi­ty dis­cussing pri­vate mat­ters. When reached by email, Dastmaltschi referred requests for an inter­view to Credit Suisse.

“Credit Suisse can’t com­ment on poten­tial client rela­tion­ships,” the bank said in response to a writ­ten request for com­ment. “It also does not com­ment on accounts that nev­er exist­ed and on accounts that were closed by the bank years ago.”

Credit Suisse is by no means the only bank that sought busi­ness from rich Russians, but it does stand out for the size of its expo­sure. The lender says about $US33 bil­lion of the pri­vate wealth it man­ages belongs to rich Russian indi­vid­u­als. That’s 50 per cent more than UBS Group, despite its crosstown rival hav­ing a much big­ger over­all wealth business.

Chaotic gold-rush era

As the busi­ness cater­ing to rich Russians has tak­en a hit, some of the 70 or so employ­ees on the desk are now busy help­ing the over­stretched com­pli­ance teams keep tabs on which client assets are sub­ject opendemocracy to sanctions.

But the bulk have been relo­cat­ed to areas focus­ing on oth­er clients in cities includ­ing London and Zurich, while oth­ers have been let go, accord­ing to peo­ple famil­iar with the departures.

For his part, Dastmaltschi has piv­ot­ed his entire focus to clients in the Middle East and Western Europe, work­ing along­side invest­ment bank chief Christian Meissner, to bring deals to the bank’s cap­i­tal mar­kets team.

Credit Suisse entered Russia soon after the col­lapse of the Soviet Union, an ear­ly for­ay that gave it an edge in the chaot­ic gold-rush era that helped a small group of Russians – often referred to as oli­garchs – build vast fortunes.

Though oth­er firms also have bankers work­ing with rich Russians, Dastmaltschi set him­self apart as the go-to trou­bleshoot­er for the wealth­i­est clients from the region.

He’s been friend­ly with Usmanov for many years, help­ing the Uzbek-Russian tycoon finance his vast hold­ings, which include a wide-body Airbus A340 jet that nor­mal­ly accom­mo­dates more than 300 pas­sen­gers, a glob­al prop­er­ty port­fo­lio and until recent­ly a major stake in London foot­ball club Arsenal.

When the giant Dilbar moored in Monaco for the annu­al Yacht Show, Dastmaltschi would often spend time on board to hob­nob with Usmanov and his entourage – all the while book­ing a hotel room in the prin­ci­pal­i­ty to adhere to com­pa­ny pol­i­cy, peo­ple famil­iar with the mat­ter say.

window.tgpQueue.add('tgpli-64a7dd4cc7339')Babak Dastmaltschi was able to charm clients and han­dle com­plex transactions. 

Dastmaltschi’s ori­gins are a long way from Monaco’s bil­lion­aire bay, or indeed Zurich’s monied Bahnhofstrasse, home to Credit Suisse and UBS. He grew up in Tehran and stud­ied in the US, earn­ing a bachelor’s degree in eco­nom­ics from George Washington University.

Dastmaltschi began his career at McKinsey in Washington, before doing stints in New York and Germany. He lat­er jumped ship to Morgan Stanley Dean Witter, ris­ing to head the US bank’s pri­vate wealth busi­ness in Germany.

In 2001, he moved to Credit Suisse to head a new­ly cre­at­ed glob­al fam­i­ly office, where the price of admis­sion is at least €50 mil­lion ($75 mil­lion) in assets. That put him in pole posi­tion when the new­ly mint­ed elite from Russia came pour­ing into Switzerland in the years that followed.

Besides Usmanov, Dastmaltschi worked with Roman Abramovich, who request­ed the Credit Suisse banker help him with an ulti­mate­ly unsuc­cess­ful bid for res­i­dence in the exclu­sive Swiss ski resort of Verbier, peo­ple famil­iar with the mat­ter say.

‘You basically can’t touch them’

Dastmaltschi also came to the res­cue for Viktor Vekselberg to help shore up a port­fo­lio of Swiss indus­tri­als when his main bank in Switzerland, UBS, was under­go­ing a state bailout dur­ing the 2008 finan­cial cri­sis, the peo­ple say. As a result, the Russian shift­ed more of his wealth over to Credit Suisse.

While well-versed in German (he was born to an Austrian moth­er), as well as English, Dastmaltschi doesn’t speak flu­ent Russian. For some Russian clients, that was a plus because the lan­guage bar­ri­er kept him one step removed from the Moscow clique and gossip.

Among col­leagues, Dastmaltschi earned a rep­u­ta­tion as a pri­vate banker able to both charm clients and man­age com­plex demands for financ­ing pur­chas­es of large yachts and pri­vate jets. His big-tick­et items would con­tribute sig­nif­i­cant­ly to the wealth divi­sion meet­ing its rev­enue and net new asset goals, peo­ple with knowl­edge of the desk’s per­for­mance say.

But then in 2014 the Russia desk ran into seri­ous trou­ble when Russia annexed Crimea, set­ting off a first wave of sanc­tions from Europe and the US. Compliance and know-your-cus­tomer rules were already becom­ing much tougher and the oli­garchs who’d got rich under pres­i­dents Boris Yeltsin and Vladimir Putin were becom­ing a lia­bil­i­ty for the bank, even if the gov­ern­ment restric­tions imposed that year were still rel­a­tive­ly nar­row in scope.

The bank with­drew from some rela­tion­ships, includ­ing one with Suleyman Kerimov after a pub­lic tax dis­pute in France relat­ed to his prop­er­ties on the French Riviera, peo­ple famil­iar with the mat­ter say.

Then in February, Putin’s inva­sion of Ukraine and the waves of fresh sanc­tions brought the Russia desk crash­ing to a halt. Hundreds of mil­lions of client assets were frozen, and bankers raced to unwind loans out to oth­ers who might be next on the ever-expand­ing sanc­tions list.

window.tgpQueue.add('tgpli-64a7dd4cc7346')The inva­sion of Ukraine has turned Alisher Usmanov and oth­er rich Russians into eco­nom­ic pari­ahs. Bloomberg

“You basi­cal­ly can’t touch them,” Credit Suisse chief exec­u­tive offi­cer Thomas Gottstein said on a call to dis­cuss earn­ings last month. “We do not real­ly have any new busi­ness with Russian clients at all.”

As a result, rev­enue from trad­ing and lend­ing is expect­ed to plum­met to almost zero. The once lucra­tive financ­ing of pri­vate com­pa­ny or yacht pur­chas­es has com­plete­ly evaporated.

Compounding mat­ters for the bank, the implod­ing Russian busi­ness isn’t the only major hur­dle loom­ing that involves the banker.

Dastmaltschi’s deep ties to the region have drawn him into an inves­ti­ga­tion by Geneva pros­e­cu­tors into whether Credit Suisse should be held crim­i­nal­ly respon­si­ble for a fraud per­pe­trat­ed by for­mer star banker-turned-felon Patrice Lescaudron, who was con­vict­ed in 2018 for fak­ing trades and oth­er trans­ac­tions, many tied to Russian clients.

Credit Suisse said Lescaudron “was not sup­port­ed by any oth­er employ­ee of Credit Suisse in his crim­i­nal activities”.

Dastmaltschi, who has nev­er been named a sus­pect in the Lescaudron case, helped over­see the Frenchman’s clients. He has been inter­viewed twice by pros­e­cu­tors recent­ly, to pro­vide infor­ma­tion about what he knew of Lescaudron when the lat­ter was man­ag­ing mon­ey for Georgian bil­lion­aire Bidzina Ivanishvili.

“Whenever Credit Suisse receives indi­ca­tions of pos­si­ble mis­use of an account for illic­it activ­i­ties, we ini­ti­ate the nec­es­sary steps in accor­dance with applic­a­ble laws and reg­u­la­tions,” the bank said in its statement.

The senior banker was crit­i­cised in a relat­ed judg­ment in Bermuda for not dis­clos­ing the extent of his knowl­edge of Lescaudron’s ear­ly wrong­do­ing, accord­ing to a copy of the March rul­ing. The judge in Bermuda assessed Ivanishvili’s loss­es at the hands of Credit Suisse at more than $US550 mil­lion, and ruled that its life insur­ance com­pa­ny turned a “blind eye” to the behav­iour of the rogue banker.

The Bermuda case prompt­ed Credit Suisse to issue a prof­it warn­ing in April, exac­er­bat­ed by a write-down of rough­ly $US200 mil­lion on the bank’s Russia-relat­ed exposure.

In the Lescaudron case, an indict­ment of the bank for fail­ing to take all mea­sures required to pre­vent a felony is a real pos­si­bil­i­ty, peo­ple famil­iar with the inves­ti­ga­tion say, which would bring a tri­al in Geneva and the prospect of Dastmaltschi being called to tes­ti­fy. Credit Suisse says nei­ther the crim­i­nal pro­ceed­ings against Lescaudron, nor any oth­er inves­ti­ga­tions “so far reveal any facts that would sup­port the crim­i­nal com­plaints against the bank.”

And what hap­pens to the man who rou­tine­ly answered the phone when oli­garchs came call­ing? Sanction rules pre­vent Dastmaltschi from doing busi­ness with the likes of Usmanov and Vekselberg.

For the last 10 years or so, Dastmaltschi has been respon­si­ble for the top clients across all of EMEA. As a deal­mak­er for the world’s wealth­i­est, he runs an elite team that looks after what Credit Suisse calls “entre­pre­neur­ial high net worth clients”.

The Dilbar, mean­while, is immo­bilised in dis­tinct­ly unglam­orous sur­round­ings. Covered in white tar­pau­lin in a Hamburg dry dock, the giant ves­sel has been impound­ed by German author­i­ties. At this point, it looks unlike­ly that the ship will make an appear­ance at this year’s Monaco Yacht Show in September to wel­come Dastmaltschi – or any­one else – on board again.

Original source of arti­cle: www.afr.com