Credit Suisse: Bank rescue damages Switzerland’s reputation for stability

  • By Imogen Foulkes
  • BBC Geneva Correspondent

image source, Getty Images

So goodbye to Credit Suisse. Founded in 1856, the bank has been a pillar of the Swiss financial industry ever since. Although ravaged by the 2008 financial crisis, Credit Suisse managed to weather that storm without a government bailout, unlike its savior-turned-rival UBS.

More recently, the marketing face of Credit Suisse has been Swiss tennis god Roger Federer. He smiles down from posters in Swiss airports, a symbol of strength, excellence, endurance and reliability.

But behind the shiny promotion were some big problems. Management divisions, costly exposure to collapsed finance company Greensill Capital, a shady money laundering case and declining customer confidence in recent months have seen billions pulled from the bank.

All it took to turn those doubts into a stampede was a seemingly simplistic comment from the Saudi National Bank, which owns nearly 10% of Credit Suisse, suggesting that it would not increase its investment.

Credit Suisse shares went into freefall and not even a statement of confidence from the Swiss National Bank and an offer of $50bn (£41bn) in financial support failed to stabilize the situation.

Sleeping behind the wheel?

How could this have happened?

After the financial crisis 15 years ago, Switzerland introduced strict so-called “too big to fail” laws for its largest banks. Never again, thought the thought, should the Swiss taxpayer have to bail out a Swiss bank, as happened with UBS.

But Credit Suisse is a too big to fail bank. In theory, it had the capital to prevent this week’s catastrophe.

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

It was strange last week to see the rest of the world’s genuine concern when Credit Suisse’s shares plummeted, and to initially hear nothing from Switzerland.

image source, Getty Images

caption image,

Roger Federer went from winning prize money sponsored by Credit Suisse to being his marketing figurehead

Even the Swiss media did not seem to notice the headlines in the Financial Times and seemed more interested in the ongoing debate about how much support neutral Switzerland should provide to Ukraine.

By the time people noticed, so much damage had been done that Credit Suisse was beyond saving. The fallout began to threaten not only Switzerland’s entire financial sector, but also Europe’s.

When the government met in emergency session to find a solution, you could almost smell the panic in Bern.

It is hard to avoid the conclusion, some Swiss now say, that the very people who should have acted to prevent the collapse of Credit Suisse were asleep behind the wheel.

Switzerland’s reputation has been damaged

That lack of attention will cost a lot of money. The acquisition of UBS, for the paltry sum of $3 billion, is not only a major humiliation for Credit Suisse, but is also likely to leave shareholders much poorer.

There will also be job losses, perhaps in the thousands. There are branches of Credit Suisse and UBS in just about every Swiss city. Once the acquisition is complete, it makes little sense for UBS to keep them all open.

But perhaps the most costly damage to Switzerland’s reputation as a safe place to invest.

Despite the scandals over the years surrounding the secret bank accounts of dictators (including Ferdinand Marcos of the Philippines, Congolese dictator Mobutu Sese Seko and many others), or money laundering for drug lords and tax evaders, Swiss banks clung to that reputation symbolized by Roger Federer: strong and reliable.

But now? A system with which a 167-year-old bank goes bankrupt in a matter of days, at the cost of many jobs and massive losses in value?

This can cause enormous reputational damage. The Swiss banking industry, Swiss financial regulators and the Swiss government all say the takeover is the best solution.

In the end, at the very last minute, it was the only solution. A number of difficult questions will have to be answered in the coming days.






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