On Sunday, one of the biggest newspapers in Switzerland published an illustration showing the headquarters of the Credit Suisse Group AG engulfed in flames. The picture, meant to conjure up the bank’s alleged “last days,” is also a metaphor for the embarrassment and alarm that the lender’s rapid collapse has caused in the home country.
After days of feverish negotiations between the government’s lawyers, it was taken over by a bigger, homegrown competitor, UBS Group AG, whose main office is not far from Credit Suisse’s main building on Paradeplatz, Zurich’s financial center.
With Credit Suisses fate apparently settled after years of corporate scandals, infighting and ill-placed investments, the country, which prides itself on orderliness and stability, is left mulling over the implications for its own reputation, as well as potential economic and political consequences.
For some, the debacle has also raised questions about Switzerland’s financial regulators, and whether authorities should have intervened sooner to stem a crisis before it spiraled out of control.
One direct focus is on the nearly certain job losses. Credit Suisse is already undergoing cuts to about 9,000 positions in an effort to salvage itself, and a person with knowledge of the situation said that in the event of UBSs acquisition, the ultimate cost may well be much higher.
The two lenders combined employed nearly 125,000 people globally as of late last year, with around 30% of them in Switzerland, and many roles would be overlapped.
With Credit Suisses fate apparently settled after years of corporate scandals, infighting and ill-placed investments, the country, which prides itself on orderliness and stability, is left mulling over the implications for its own reputation, as well as potential economic and political consequences.
For some, the debacle has also raised questions about Switzerland’s financial regulators, and whether authorities should have intervened sooner to stem a crisis before it 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.”
There are only 30 banks globally designated as being of global systemic importance, and Switzerland hosted two of those, meaning that it has a greater level of exposure to the sector than many similarly-sized countries. Credit Suisse and UBS combined hold 1.6 trillion francs ($1.7 trillion) of assets, about twice as much as the economy.
The government has been pushing the notion that the agreement between the two is a buyout, although some are calling it, very simply, a rescue. And Swiss citizens are probably concerned about how much government money is now being held responsible for the bank that fell from grace so spectacularly.
The sweeteners needed to keep UBS on board included nine billion francs of direct guarantees, and several times that in liquidity support.
Credit Suisses downfall was a product of the failings of successive management teams. And the takeover by UBS marks a possible elimination of the name which had become synonymous with Swiss banking.
The Swiss Federal State was founded in 1848. Credit Suisse’s first predecessor was only eight years younger. The chaos of Credit Suisse stands in stark contrast to the orderliness of the country, where political parties rule by consensus, matters of national importance are decided through periodic referenda, and trains are hardly ever late.
Switzerland is consistently ranked among or near the top on a number of financial and social economic measures, from per capita GDP to life expectancy. It is also building up the economic bastion that might be serving it well right now.
Unemployment is under 2%, well below that of neighboring Italy, France, and Germany. The public debt-to-GDP ratio is around 40%, half of eurozone levels, while inflation is only 3.4%.
The Social Democrat party has called for the establishment of a parliamentary committee to investigate the government’s arranged bailout of Credit Suisse, Tages-Anzeiger reported 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.
The UBS-Credit Suisse transaction is “destined to provoke legal and political opposition,” according to Opimas CEO and co-founder, Octavio Marenzi.
He sees legal battles over lack of shareholder approval, while individuals could seek to challenge government guarantees through national ballots.
As night fell in Zurich Sunday, the nation tuned into a news conference about a deal that would merge Switzerland’s two biggest banking groups into one.
But even before it began, financial markets, which had been fixated on Credit Suisse’s fortunes for weeks, began turning their attention to UBS: the cost of hedging UBS’s debt against default has spiked, as investors respond to the potential financial drain from swallowing up its smaller rival.
