GENEVA – UBS’s takeover of beleaguered rival Credit Suisse has shaken Switzerland’s self-image and tarnished its reputation as a global financial centre, analysts say, leaving the country’s prosperity dependent on a single banking giant. Might be possible.
The uncertain future of Switzerland’s union of two global banks comes at a thorny time for Swiss identity, built almost as much on chocolate, watchmaking and cheese as on a self-image of finesse in finance.
The regulators helping arrange the $3.25 billion deal have a lot on their plates as UBS examines its rival’s books, cherry-picks the parts it wants and dispenses with the rest.
“The real question is what is going to happen, because now we will have a mastodon – a monster – that will be too big to fail,” said Mark Chesney, finance professor at the University of Zurich. “The danger is that over time, it will take more risks knowing that it is too big for the Swiss state to leave.”
After studying the numbers, he said, the total value of foreign securities held by the merged bank — such as options or futures contracts — could be as much as 40 times Switzerland’s economic output.
“Over time, UBS will control the Swiss state, rather than the other way around,” Chesney said.
The neutral, prosperous country of approximately 8.5 million people enjoys the highest GDP per capita of any country. Switzerland’s relatively low taxes and pro-privacy environment attract well-heeled expats, and it regularly ranks among the most innovative countries. Over the generations, it has become a global center for wealth management, private banking and commodities trading.
The Tax Justice Network ranks Switzerland second only to the US in terms of financial privacy.
That was on display this week when a two-year investigation by a US Senate committee found that Credit Suisse violated a plea agreement with US authorities by failing to report secret offshore accounts that the wealthy US was able to pay taxes on. Used to avoid
Such turmoil at Switzerland’s second-biggest bank, including hedge fund losses and fines for failing to stop money laundering by a Bulgarian cocaine ring, left it vulnerable as the U.S. bank this month took stock of the market. created an uproar.
Now, many conservatives are reviving their call for Switzerland to turn inward.
Christoph Blücher, a former government minister and power broker of the right-wing Swiss People’s Party, described the Credit Suisse–UBS deal as “very, very dangerous, not only for Switzerland or the United States, but for the whole world”.
“It has to stop,” he told French-language public broadcaster RTS. “Swiss banks should remain Swiss and keep their operations in Switzerland.”
If Switzerland wants to be a strong financial center, it needs a globally important bank, said Sergio Ermotti, who was CEO at UBS for nine years and will return to help with the acquisition.
“To me, the debate today isn’t ‘too big to fail’ — it’s ‘too small to survive,’” Ermotti told a news conference this week. “And we want to be a winner out of this.”
Grégoire Bordier, scion of an illustrious Geneva banking family who chairs the association of Swiss private banks, underestimated the size of the merged entity, estimating that it would have roughly the same weight in Switzerland as Dutch giant ING in the Netherlands’ economy. is relative to. Output.
“Instead of arranging the dismemberment of the last great ‘universal bank’ in this country – and letting rival finance companies reap the benefits – it is necessary for the new UBS to implement greater control measures,” Bordier told the Tribune de Geneve newspaper. told.
Nevertheless, he acknowledged that the potential importance of the combined entity within Switzerland was “another question”, adding that he reacted to Banks’ shotgun wedding on prime-time TV as if watching “a bad soap opera”. Have been
Critics say the federal government was sleep deprived and had learned nothing from the 2008 global financial crisis.
Blocher’s protégé, Uli Maurer – who was finance minister until he stepped down in December – favored a hands-off approach of letting banks such as Credit Suisse solve their problems.
Octavio Marenzi, CEO of consulting firm Opimas LLC, said the Credit Suisse rescue is a blot on regulators and the idea that putting money in a Swiss bank means it is “rock solid and safe.”
“That reputation has been tarnished, and it is very difficult to recover that reputation,” Marenzi said. “Unfortunately, a reputation that you’ve built over years and decades and maybe even centuries, you can destroy really quickly.”
Beyond banking, Switzerland’s image has been shaky lately, generating debate ahead of parliamentary elections in October.
A net of bilateral deals with the European Union, Switzerland’s biggest trading partner, has been shadowed under a standoff with Brussels. The country’s constitutionally enshrined commitment to “neutrality” has angered Western nations who are blocking Swiss-made weapons from being shipped to Ukraine to fight Russia.
The Swiss diplomat, who has been a mediator between Iran and Saudi Arabia since the countries broke ties in 2016, was absent as China struck a deal this month to restore ties between the Middle East rivals.
Scott Miller, the US ambassador to Switzerland, who is a former UBS executive in Colorado, leads the debate on how European countries interpret their idea of neutrality.
Miller told the Neue Züricher Zeiting newspaper this month that Switzerland was facing “the biggest crisis since World War II” and urged the Swiss to help Ukraine protect itself – or at least others. Don’t stop doing this.
Before the bank wedding was planned on March 19, Credit Suisse was shorting deposits, shareholders were dumping their stock and creditors were demanding repayment.
Since then, some smaller Swiss banks have reported an inflow of deposits from Credit Suisse customers. Employees face the prospect of widespread job cuts, although it could take weeks or months to iron out the details.
The result is not over yet.
A special session of parliament next month is expected to discuss the takeover, including a “too big to fail” law and possible penalties against Credit Suisse managers.
“It doesn’t have to be such a big bank,” said Sasha Steffen, a professor of finance at Germany’s Frankfurt School of Finance and Management, pointing to efficiency.
But making it giant can make it harder for small businesses to get loans. The way the acquisition was carried out — using emergency measures to change Swiss law and breaking the bondholder-shareholder pecking order on losses — has unsettled investors.
“Some markets really didn’t like the sham marriage that was initiated by the government, especially when there was no involvement of other stakeholders,” Stephen said.
“The attractiveness as a place to invest has definitely been damaged,” he said.
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AP Business Writers David McHugh in Frankfurt, Germany and Courtney Bonnell in London contributed.
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