Just ten years after the end of World War I, the worst economic crisis of modern times took hold. In Germany and the United States, the world’s two largest economies, unemployment peaked at over 20 percent in 1932. Banks collapsed, currencies depreciated dramatically, tariff barriers were erected and international trade imploded. In 1932, the British historian Arnold Toynbee wrote that, for the first time, men and women across the globe were openly discussing “whether the western social system would fall apart”. Switzerland was rocked by the global turbulence. Exports plummeted by 50 percent, and several large banks were brought to the brink of bankruptcy; the crisis looked like it would never end, resulting in record-high rates of unemployment. The Swiss government and the Swiss National Bank had to ward off a collapse in order to prevent a systemic banking crisis. Only when the Swiss franc started to depreciate in autumn 1936 did the storm clouds begin to disperse.
Amazingly, the global economic crisis had hardly any direct consequences for Allgemeine Treuhand AG. Although sales figures contracted slightly, reported profits were actually higher on average than during the boom years of the 1920s. The Board of Directors compiled the 1932 Annual Report while the Global Economic Conference was being held in London to discuss ways of managing the worldwide depression. It highlighted the “catastrophic economic conditions” – the Swiss economy hit its low that year – but stated that “in spite of the difficult circumstances the company can look back on the financial year just ended with satisfaction”. Even if some clients seemed to defer expenditure on advisory in times of difficulty so as to save costs in the short term, Allgemeine Treuhand AG found “adequate activity” in all areas. The economic malaise impacted the development of Treuhand in an indirect manner, however. Basler Handelsbank was crippled by the crisis. Having recorded CHF 835.9 million in total assets and CHF 100 million in share capital at its peak in 1930, the German banking crisis proved its downfall. It had granted massive volumes of loans to Germany. After the German government responded to the increased outflows of capital in summer 1931 by imposing a temporary ban on capital transfers, BHB was hit with massive payment defaults. Its reputation was also damaged by the arrest of two of its employees in Paris in October 1932 for having helped French clients evade taxes. And, in the wake of the depreciation of the Belgian franc in spring 1935, BHB was faced with a significant withdrawal of external capital. Since Allgemeine Treuhand AG functioned as not only Basler Handelsbank’s auditor but also as that for its subsidiaries, it soon became clear to Treuhand’s external auditors that its parent bank “was buying up its own shares by way of Industriebank and a trust fund” to prop up their price. But the measure failed to have the desired effect: prices continued to fall, prompting a halt to the support measures and a drop in the BHB share price to 5 percent of its nominal value. To avert bankruptcy, in 1935 the institution applied to the Federal Council for a payment extension and ultimately had to be reorganised. Its share capital was reduced to CHF 13.95 million, and the nominal value of a share set to CHF 100.
The fact that Allgemeine Treuhand AG was able to acquire CHF 50,000 of shares from its owner illustrates a certain shift in the balance of power between parent company and subsidiary. Basler Handelsbank, for its part, accused Treuhand of having distanced itself more and more from its parent firm and even of starting to do business directly with other banks. In a report entitled “Exposé re. Shares of Allgemeine Treuhand AG” in 1935, Basler Handelsbank stated that the outright liquidation of the bank could not be ruled out and that consideration should be given to what should happen with the shares of Allgemeine Treuhand, which in the meantime had evolved into a “respected institution”. Treuhand, for its part, put forward the idea that persons from the Board of Directors, the management board and the core clientèle of BHB could buy the shares of Treuhand off them. The proposal initially fell on deaf ears at Handelsbank, however.
A further repercussion of the crisis were the changes to auditing activity through new legislation. The banking crisis, which saw BHB and five other major Swiss banks restructured, brought to light several regulatory shortcomings, leading to the introduction of the Banking Act in 1935. It also prompted the 1936 revision of stock corporation law. Both pieces of legislation had a significant impact on the trust and audit industry. In the short term, they led to an increase in mandates, since companies frequently sought legal advice to help them comply with the new regulatory framework. In the long term, they triggered a rise in demand for professional auditing and higher regard for the industry in general. “It wasn’t until the implementation of the Banking Act and the revised Code of Obligations that trust companies and audit associations were given the boost they are enjoying today,” wrote the Secretary of the Federal Banking Commission (SFBC), Paul Graner, in 1939.
The new stock corporation law stipulated that the audit department could no longer just perform a formal audit, but rather was subject to a substantive auditing obligation involving a check of the applied accounting principles. This codified what Allgemeine Treuhand AG had long been practising; the decision had been taken back in 1922 to no longer accept any orders that consisted solely of checking whether the balance sheet matched the books. A statutory audit by an accounting expert was introduced for this purpose. This applied to public limited companies with at least five million Swiss francs in share capital or outstanding zero coupon bonds. The accounting experts had to report to the Board of Directors and the audit department, but not to the shareholders. The Banking Act of 1935 required all banks to have their annual accounts inspected by an auditor from outside the company. It provided that this could be done only by trust companies and auditing associations that were recognised by the newly founded Swiss Federal Banking Commission (SFBC). Individual auditors were excluded. It goes without saying that being awarded the accreditation by the SFBC to conduct bank audits became a matter of priority for Allgemeine Treuhand AG. However, this plan was thwarted by Article 20 of the new Banking Act, which stated that the auditor is not permitted to perform asset management and conduct “actual bank business”. This clause was proposed by bank representatives in the National Council who sought to prevent competitors from gaining an insight into their banks’ books. It was thus that the compatibility of the service combination offered by the bank-trust companies that had developed organically over the years was restricted by law for the first time.
“Our company is therefore forced to find an alternative,” wrote the management board in May 1935 to the members of the Board of Directors: “either give up a large portion of its business, i.e. asset management, in order to qualify as an auditing institution or, on the other hand, found a special auditing company that would deal specifically with bank audits as defined by the Federal Act in question.” Since it did not want to relinquish the income generated by asset management, the company opted for the second alternative and that same year founded Kontroll & Revisions AG (Koreag) for the banking sector. Of Treuhand’s direct competitors, only Schweizerische Revisionsgesellschaft – which had close ties with the banking business – gave up asset management in order to be officially recognised as an auditor in compliance with banking law. Hans Müller, who until then had worked at Allgemeine Treuhand AG in the capacity as Authorised Officer, was promoted to Managing Director of Koreag. Bank audit got off to a rocky start, however. After being awarded a license by the Banking Commission in 1935, just two years later the SFBC criticised the employee and office links between Treuhand and Koreag (Koreag did not have a staff of its own). This delayed the start of its work in the bank audit business, which did not pick up speed until after the war, and in which it went on to be successful.
Beyond that, the audit industry was not regulated. The two amendments stipulated only – in order to ensure a degree of independence in the audit – that the auditor might be a shareholder but not a member of the board of directors or an employee of a company. However, the Swiss Chamber of Auditors (Kammer für Revisionswesen), which was founded in 1925 from the Association of Swiss Accountants (Verband Schweizerischer Bücherrevisoren), the leading trust companies and the audit associations of the banks and savings banks, was to prove effective as the profession’s own regulator. It held tough examinations to protect the title of “auditor”, confer a diploma, and “keep auditors under control”. On a political level, it campaigned for more stringent monitoring of public limited companies. It was also through this body that trust companies agreed minimum rates for fees that were binding on all members. In 1936, the title of Certified Accounting Expert (diplomierter Bücherexperte) was protected under professional law. Josef Kaufmann, Chairman of the Board of Directors and the first Managing Director of Allgemeine Treuhand AG, died in 1939. His elected successor as Chairman was Dr. Manfred Hoessly, who had been hired with the rank of Authorised Officer in 1919 and had served as Managing Director since 1923. Hans Weibel and Werner Bosshard in Basel and Ernst Wälti in Zurich were now Directors of Allgemeine Treuhand AG. Hoessly was joined on the Board of Directors by Basel-based architect J.J. Egon Vischer and Robert La Roche, Chairman of the Swiss Bankers’ Association and a former member of Treuhand’s audit department as representatives of Basler Handelsbank.
Barely had the global economic crisis been overcome when, in 1939, World War II broke out. Its indirect effects on Allgemeine Treuhand AG took the form of personnel shortages due to mobilisation efforts. Also, since salaries could not be reduced to a corresponding degree, the staff shortfall caused a significant dent in income. In order to post a good operating result, in 1943 the company activated hidden reserves it had had on its books for years in the form of outstanding invoices (and had also disclosed as such on its tax statements). Even during war, however, demand for Treuhand’s services did not falter. “On the contrary, we report with satisfaction,” so read the Annual Report 1939, “that in spite of the difficult environment our operations have not suffered in any of our diverse areas of activity.” In the same year, the firm’s head office was moved temporarily from Basel on the German border to Geneva, where it took up home in the Basler Handelsbank branch. The wartime economy, which saw the government actively intervene in the distribution of resources through quotas and rationing, not only gave rise to a need for advice on new taxes, but also created problems for companies needing to adjust prices and structure costs. This raised questions about operational measures requiring external advice. It also opened the door for Treuhand to a whole new set of clients: public bodies. During the war, the Annual Reports alluded to numerous cases of “misappropriation and irregularities” and proposed, among other things, “subjecting institutions under public law such as universities, schools, hospitals to periodic technical controls”. This would be a simple way of meeting the “requirement for state-controlled provision”. The calls were successful. In its 1947 Annual Report, the management board of Allgemeine Treuhand AG highlighted it as “especially noteworthy” that it had now received mandates from the authorities to “organise public administrative bodies, in each case involving auditing work” – something it would be able to expand upon in the years to come. The introduction of the Federal Old-age and Survivors’ Insurance (AHV) also led to many new advisory mandates. The focus on the public sector was one of the motivations for founding a third office, this time in the Swiss capital of Berne.
This location, the company believed, would help it better serve French-speaking Switzerland. After a few teething problems, the right man for the job was found in Hans Müller, then Managing Director of Koreag and Deputy Director of Allgemeine Treuhand AG, and a new branch was opened at Schauplatzgasse 23 in Berne on 1 April 1944. Four years later, a neighbouring building, No. 11, was purchased. Another property at Aeschengraben 11 in Basel was also bought during this period, thus achieving the goal the company had set itself back in 1934, namely of owning an adjoining block of buildings on Aeschengraben – the up-and-coming “Fifth Avenue of Basel”, as Chairman of the Board of Directors Manfred Hoessly described it.
The end of the war brought with it an event that shaped the future course of ATAG – an acronym that now appears more and more in the sources. Basler Handelsbank at last “fell victim to placing far too much trust in a peaceful recovery in Germany after World War I,” as the financial publication Finanz-Revue generously put it. On 7 May 1945, the “German Reich” collapsed, and so did the movement of capital and, ultimately, Basler Handelsbank. In October, the Swiss Bank Corporation, Basler Handelsbank’s former rival and the owner of Schweizerische Treuhandgesellschaft (STG), took over all BHB’s unencumbered assets. These included the shares in Allgemeine Treuhand AG, which – alongside those in Roche – were described in the negotiations between Basler Handelsbank and SBC as the most valuable asset.
Chairman of the Board of Directors Hoessly saw this as an opportunity for a management buy-out. The Swiss Bank Corporation, by contrast, considered it to be in line with its business policy to retain the shares of Allgemeine Treuhand AG and to assign two members to the Board of Directors. ATAG would then be run in parallel to STG, which was the largest trust company in the country. Two factors were against this: firstly, Article 5 of the Articles of Association gave ATAG’s Board of Directors the right to block entry in the Commercial Register without specifying the reasons. Secondly, Hoessly made it clear to SBC Chairman Rudolf Speich-Jenny, who was a friend of his, that the continued operation of the Treuhand as the property of the Swiss Bank Corporation “would not be accepted by the key persons at ATAG, and pursuing such a business policy would result in the liquidation of ATAG”. Indeed, the staff of the Berne branch, which one year after it was founded was already, with 20 employees, larger than the head office in Zurich had handed in their notice in unison effective at the end of the year once SBC took ATAG over. Hoessly had also founded the company La Gérance in Berne. The plan was that, if the negotiations with the Swiss Bank Corporation were to fail, the lion’s share of the management team would have relocated to Berne and the offices in Basel and Zurich would have been run as no more than branches of the new company. “The Swiss Bank Corporation found itself confronted with a situation in which, had they insisted on keeping hold of their shares, they would have been left with no option other than to liquidate the company,” Hoessly later explained to the Board of Directors. With that in mind, those at the top at SBC decided to let Hoessly make them an offer for the ATAG shares. A total price of CHF 950,000 was agreed upon for all 915 shares. Hoessly bought all of the share certificates in his own name. Shortly thereafter, he sold 300 of the acquired shares to Paul Sacher, a patron of music who, as husband of Roche heiress Maja Hoffmann-Stehlin, also served on the chemical company’s Board of Directors. Sacher then appointed his proxy, industrialist Alfred Von der Mühl, to the Board of Directors of Allgemeine Treuhand AG. The latter took over the seat of his brother-in-law, banker Robert la Roche, who had died in 1945. Likewise, Walther Weyermann, Secretary of the Chamber of Commerce and Industry, and Paul Haas, a business consultant from Berne who was a close friend of Manfred Hoessly, were also elected to the Board.
The redemption from the Swiss Bank Corporation left the majority stake in Allgemeine Treuhand AG in the hands of Board Chairman Manfred Hoessly. The fact that ATAG resisted the takeover by SBC shows that there were alternatives to the satellite relationship between major bank and trust company still extolled by Josef Kaufmann, which was characterised both by the issuing of mandates by the parent institution and dependency on it.
Hoessly now had the idea that the company’s employees should be allowed to share in its success. With that in mind, in 1946 the Board of Directors decided to give the longest-serving employees one Treuhand share each as a gift. By 1951, 47 employees – three of them women – had taken advantage of this offer. This meant that ATAG employees had a stake in their own company’s success, albeit symbolically with one share each. However, Chairman Hoessly wanted to anchor the majority of shares in a foundation rather than leave them to an “uncertain fate”. This eventually happened in 1958, when the management board set up the Dr. Manfred Hoessly-Stiftung in his honour, dedicated to employee welfare. Additional provident institutions belonging to the company were founded from 1942 onwards because the pension fund of Basler Handelsbank was unable to keep up with inflation.
At the 80th meeting of the Board of Directors at Aeschengraben 9 in 1948, Dr. Manfred Hoessly looked back on what had been achieved so far. The company had grown to 134 employees in three locations, and, with fee revenues of CHF 2,389,458, was the third-largest trust company in Switzerland after STG and Fides. He said he thought “that probably meant the company had attained the zenith of its development, not least as far as the Berne office was concerned. Any further significant increase in business volume is unlikely.” He couldn’t have been more wrong, as we shall see.