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Swiss look in despair as once-mighty Credit Suisse craters

(Bloomberg) — On Sunday, one of Switzerland’s largest newspapers depicted the headquarters of Credit Suisse Group AG in flames. The image, meant to highlight what the headline called the bank’s “last days”, was also an allegory for the embarrassment and helplessness that the lender’s rapid eviction had caused in its home country.

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After several days of frenzied government-broker negotiations, it is being taken over by larger domestic rival UBS Group AG, whose headquarters are located close to Credit Suisse’s main building at Paradeplatz in Zurich’s financial centre.

After years of corporate scandals, infighting, and ill-conceived investments, the fate of Credit Suisse is seemingly sealed, a nation that prides itself on orderliness and stability, with its reputation at risk of possible economic and political fallout. The effect has been omitted.

For some, the debacle also raises questions about Switzerland’s financial regulator and whether authorities should have acted earlier before things spiraled out of control.

“Switzerland has suffered another damaging blow to its reputation for prudence, stability and financial management,” said Kern Alexander, professor of law and finance at the University of Zurich. “This is another example of where weak regulation leads to a banking failure and a crisis that we hope will be contained.”

One immediate area of ​​focus is the near-inevitable job loss. Credit Suisse was already in the process of cutting some 9,000 positions to protect itself, and a person familiar with the matter said the final number in the takeover by UBS could be far higher.

The two lenders employed around 125,000 people worldwide at the end of last year, with around 30% in Switzerland, and many roles will overlap.

On Sunday, UBS chairman Colm Kelleher said management was “aware that the coming weeks and months will be difficult for many people, especially employees,” but that it was “too early to say” what will happen.

There are just 30 banks in the world that have been designated globally systemically important, and Switzerland is – or was – home to two of them, meaning it has more exposure to the industry than many similarly sized countries. . Credit Suisse and UBS together have 1.6 trillion francs ($1.7 trillion) in assets, almost twice the size of the economy.

The government is pushing the view that the deal between the two is a takeover, although some are calling it simply a bailout. And Swiss citizens are likely to be concerned about the amount of public money now on the hook of a bank that has fallen so spectacularly from grace. The sweeteners needed to get UBS on board include 9 billion francs in direct guarantees and multiples of it in liquidity support.

“You can’t address cultural deficits,” Finance Minister Karin Keller-Sutter said on Sunday night, apparently taking a dig at Credit Suisse’s repeated scandals.

Swissair Fall

Switzerland has experienced corporate trauma before, notably with the collapse of the national airline Swissair, which ceased all flights in September 2001 right after the terrorist attacks on the US and was later revived as Swissair. Which is now part of Deutsche Lufthansa AG of Germany. UBS received state aid during the global financial crisis of 2008, a topic that is still controversial in the country.

But for all their seriousness, those events came amid crises affecting their respective industries.

Credit Suisse’s decline, by comparison, was the result of failures of successive management teams. And the acquisition by UBS marks the possible extinction of a name that has become synonymous with Swiss banking. The Swiss federal state was established in 1848; Credit Suisse’s oldest predecessor is just eight years younger.

Jared Bibler, a former regulator of the Swiss Stock Exchange and author of Iceland’s Secret: The Untold Story of the World’s Biggest Con, said, “It’s a unique situation that we had two opposing titans fighting against each other on a daily basis in Paradeplatz ” “The rivalry felt as old as Red Sox-Yankees, Coke-Pepsi or US-Russia. And now only one will be left. It would certainly be a strange feeling in Zurich.

The chaos at Credit Suisse is in stark contrast to the system of a country where political parties rule by consensus, questions of national importance are decided through regular referendums and trains are almost never late. Switzerland is consistently at or near the top in a range of financial and socioeconomic measures, from GDP per capita to life expectancy.

It has also built an economic wall that can now serve it. Unemployment is below 2%, much lower than rates in neighboring Italy, France and Germany. The government debt-to-GDP ratio is around 40%, half the level in the euro area, and inflation is only 3.4%.

That’s not stopping the scandal-filled demise of Credit Suisse from spilling into the political arena just months before national elections in October. Last week, the Swiss People’s Party voiced its opposition to the state guarantee and the Social Democrats accused the bank of “exhibiting too much erratic behaviour”.

Social Democrats have called for a parliamentary commission to be set up to look into the government-orchestrated rescue of Credit Suisse, TAGs-Anziger reported on Monday.

“I am horrified by the fact that they opened the floodgates practically without limits to save a bank,” said Pierre Vannec, a Geneva city councilor on the left-of-centre Liste d’Union Populaire jo Place Bell were distributing leaflets on-air, in front of the local head office of Credit Suisse.

ubs credit default swap

The UBS-Credit Suisse deal is “bound to generate legal and political resistance,” according to Octavio Marenzi, CEO and co-founder of consultancy Opimas. He sees a legal battle against the lack of shareholder approval, while people may try to challenge the government’s guarantees with a national vote.

“Despite the Federal Council’s announcement, the Credit Suisse saga is not over,” he said.

As dusk fell in Zurich on Sunday, the country converged on press conferences for the deal that would combine Switzerland’s two major banking groups into one. But before it even began, financial markets that had been beset by the Credit Suisse situation for weeks began to turn their attention to UBS.

The cost of insuring UBS’s debt against default soared, as investors reacted to the potential financial drag from swallowing its smaller rival.

“It’s been bad, but we can get out of it and build a bank that can grow,” said Charles-Henri Monchou, chief investment officer at Syz Group, a family-owned Swiss banking group with assets of about 28 billion francs. Be the national champion.” “My only concern is that we’re going from saving from too big to failing to too big.”

— With assistance from Bryce Baschuk, Dylan Griffiths and Loukia Gyftopoulou.

(Updated with report on call for parliamentary commission in paragraph 19.)

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