How the Credit Suisse crisis tarnished Switzerland’s reputation for stability – 03/21/2023 – Market

The second largest Swiss bank and one of the 30 financial institutions in the world considered “too big to fail”, Credit Suisse has met its sunset.

Founded in 1856, the bank has now been bought by rival and countryman UBS in the midst of a historic negotiation, in a deal brokered by the Swiss government.

“With the acquisition of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” reads a statement from the Swiss National Bank, which noted that the central bank had worked with the Swiss government and the Swiss Financial Market Supervisory Authority to promote the merger of the country’s two largest banks.

Despite this, Credit Suisse shares have fallen again and are now worth less than US$ 1 (R$ 5.23).

It was a turnaround that few would have imagined happening, when in 2008, at the height of the financial crisis that swept the world, Credit Suisse, although affected like the rest of the banks, managed to weather the storm without a government bailout, unlike UBS, which now he has become your savior.

More recently, the “face” of Credit Suisse has been the god of Swiss tennis, Roger Federer. He smiles on signs at airports across the country, a symbol of strength, excellence, endurance and reliability.

But behind the brilliant campaign were some big problems. Divisive management, expensive exposure to financial firm Greensill Capital, which collapsed in 2021, a failing case of money laundering and a loss of customer confidence in recent months. Result: billions were withdrawn from the bank.

The stampede ended up gaining strength after the Saudi National Bank, the largest shareholder in Credit Suisse, with almost a 10% stake, indicated that it would not increase its investment.

Credit Suisse shares went into freefall, and even a statement of confidence from the Swiss National Bank and an offer of $50 billion (R$ 260 billion) in financial support failed to stabilize the situation.

Did you fall asleep at the wheel?

How could this have happened?

After the financial crisis 15 years ago, Switzerland introduced so-called “too big to fail” laws for its biggest banks.

It was a clear message to financial institutions: never again would the Swiss taxpayer bail out a bank in the country, as happened with UBS.

But Credit Suisse is a “too big to fail” bank. In theory, he had the capital to avert this week’s catastrophe.

Also in theory, Swiss financial regulators and the Swiss National Bank should keep an eye on these systemically important banks and could intervene before disaster strikes.

It was strange, last week, to see the rest of the world react with real concern when Credit Suisse shares plummeted and ignore, at first, what Switzerland was saying.

Even the Swiss media seemed not to mind the Financial Times headlines and seemed more interested in the ongoing debate over how much support neutral Switzerland should offer Ukraine.

By the time everyone realized it, such damage had already been done that Credit Suisse was beyond saving.

The consequences began to threaten not only the entire financial sector in Switzerland, but also in Europe.

As the government met in emergency session to try to find a solution, panic could almost be smelled in Bern.

In announcing the acquisition of the bank, Swiss President Alain Berset said that “an uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and for the international financial system”.

It’s hard to avoid the conclusion, some Swiss say, that the very people who should have acted to prevent Credit Suisse’s collapse were asleep at the wheel.

Switzerland’s reputation damaged

This lack of attention will cost you dearly. The acquisition of UBS, for the paltry sum of US$3 billion (R$16 billion), besides being a total humiliation for Credit Suisse, is likely to leave its shareholders a little poorer.

There will also be job losses, perhaps in the thousands. There are Credit Suisse and UBS branches in almost every Swiss city. Once the acquisition is complete, it doesn’t make sense for UBS to keep them.

But perhaps the costliest damage of all is Switzerland’s reputation as a safe place to invest.

Despite scandals over the years relating to the secret bank accounts of dictators (including Filipino Ferdinand Marcos and Congolese Mobutu Sese Seko, as well as many others), or money laundering for drug dealers and tax evaders, Swiss banks have maintained this reputation personified in the figure of Roger Federer: strong and reliable.

And now? A system that allows a 167-year-old bank to go bankrupt, in a few days, at the cost of many jobs and massive losses in stock value?

This can do massive reputational damage. The Swiss banking industry, Switzerland’s financial regulators and its government say the takeover is the best solution.

At the last minute, it was the only solution. In the coming days, there will be some tough questions to answer.

This text was originally published here.