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ECONOMY

Reader question: Will Credit Suisse crisis impact my savings in Switzerland?

In many people’s minds, Swiss banks are synonymous with scandals. Past and present events have shown this is sometimes true, but what — if any — effect will all these financial wheelings and dealings have on your money?

Published: 16 March 2023 11:21 CET
Reader question: Will Credit Suisse crisis impact my savings in Switzerland?
Your money is safe in Credit Swiss and other Swiss banks. Image by Peggy und Marco Lachmann-Anke from Pixabay

Usually, things that happen in Switzerland don’t reverberate around the world — except when the country’s banks are involved.

Living in a globalised and interconnected world means that scandals plaguing a Swiss bank, especially the nation’s second-largest one, will affect markets far beyond Switzerland’s borders.

And failures attributed to Credit Suisse, which sent its shares into free fall on Wednesday, are many:

Credit Suisse: The list of scandals stalking Switzerland’s second largest bank

Fortunately, as financial markets plunged in response, the news came that the beleaguered bank will borrow up to 50 billion francs from Switzerland’s central bank (SNB); after the announcement, Credit Suisse shares jumped more than 30 percent when markets opened early on Thursday.

READ MORE: Credit Suisse shares surge after 50-billion-franc lifeline from Swiss central bank

What impact is this crisis having?

You may think it impacts only the bank itself and the financial sector in general, but the consequences are far wider.

Such an event “harms society as a whole, rather than just the investors who took the risk,” according to economist Samuel Bendahan. 

“The real risk is the crisis of confidence,” he said, referring to loss of trust that can damage the bank’s image and reputation.

And, “if the economy suffers, everyone pays.”

What about the clients? Should they worry about their money deposited in Credit Suisse?

“No, not really, because there is a guarantee for small deposits in Switzerland,” Bendahan pointed out.

As The Local reported on Wednesday, Swiss banks, including Credit Suisse, are “very safe,” in international comparison, both in terms of capital and liquidity, according to Robert Reinecke, spokesperson for Swiss Banking Association (SBA).

“They have a very robust capital base even in stress scenarios,” he added.

Assets deposited in either Swiss banks or foreign financial institutions that operate a branch in Switzerland must be licensed, regulated, and supervised  by the Swiss Financial Market Supervisory Authority FINMA.

As an additional safety measure, “Swiss law demands capital adequacy standards” to ensure solvency, according to SBA.

While your deposits are covered up to 100,000 francs, there are additional protections in place as well for customers of cantonal banks.

According to Moneyland consumer platform, “many cantonal governments fully guarantee the account balances of their corresponding cantonal banks.”

This article has more information about how your money is protected in Switzerland:
 
How safe is your money in a Swiss bank? 

Is this the first time a Swiss bank has recorded major losses?

No.

As a consequence of risky expansion strategies in the midst of the 2008 global financial crisis, UBS faced a 20-billion-franc deficit — the largest ever in Swiss history.

The Federal Council and the SNB stepped in to save Switzerland’s largest bank from ruin by injecting 60 billion francs to restore some of the bank’s assets.

READ MORE: ANALYSIS: How the latest banking scandal has damaged Switzerland’s reputation
  
 
 

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ECONOMY

Geneva watch show opens in throes of Swiss banking turmoil

The Geneva watch fair opened this week buoyed by booming growth in the watchmaking industry, but insiders warily eyed the banking sector turmoil, evoking painful memories of the 2008 financial crisis.

Published: 28 March 2023 09:28 CEST
Geneva watch show opens in throes of Swiss banking turmoil

Industry professionals were upbeat on the first day of the Watches and Wonders annual fair, where 48 prestigious brands including Rolex, Patek Philippe and Cartier were showing off their new creations.

The fair, which runs until Sunday with the weekend open to the public, kicked off after two years of record gains for Swiss watchmakers.

Exports soared by 31.2 percent in 2021, after a strong rebound in sales in the United States and the Middle East.

And the return of luxury tourism to Europe in 2022 after two years of Covid disruptions pushed exports up a further 11.4 percent to 24.8 billion Swiss francs ($27.1 billion).

The growth has also continued so far this year, with exports up by another 10.6 percent during the first two months of 2023, according to statistics from the Federation of the Swiss Watch Industry.

But optimism at the Geneva fair was somewhat dampened by the angst surrounding the turbulence currently lashing the banking sector.

Switzerland – whose vibrant banking scene is a key part of the country’s economy and culture – has been rocked to the core after the government strong-armed the nation’s biggest bank UBS into swallowing up its troubled competitor Credit Suisse, in a bid to ward off a larger global banking crisis.

READ ALSO: ‘A dark day’: How Switzerland reacted to shock UBS buyout of Credit Suisse

‘Global repercussions’

The upheaval has brought back difficult memories for Swiss watchmakers.

After the 2008 round of bank failures sparked a global financial crisis, Swiss watch exports plunged 22.3 percent in 2009 – more even than during Covid-dominated 2020.

“I am unable to say what the global repercussions will be,” Thierry Stern, the boss of Patek Philippe, told AFP.

“But I still think it should be easier than in 2008-2009.”

Participants are seen next to a giant watch by German manufacturer of luxury and prestige watches at the luxury watch fair in Geneva', on March 27, 2023 in Geneva.

Participants are seen next to a giant watch by German manufacturer of luxury and prestige watches at the luxury watch fair in Geneva’, on March 27, 2023 in Geneva. (Photo by Fabrice COFFRINI / AFP)

For the moment the difficulties remain “very localised” as Patek Philippe “sells all over the world”, said Stern, who is counting in particular on Asia to ensure growth in 2023.

Jerome Lambert, managing director of the luxury giant Richemont – owner of the Cartier, Piaget and IWC brands – acknowledged that the turnaround in
demand in 2009 had been “very rapid” and very “severe”.

“But it was a big lesson for us,” he said, explaining that the group had since taken distribution in hand.

Edouard Meylan, owner of the Hautlence brand, nevertheless believes that “lights are turning red”.

“If there is a financial crisis, it will have a very big impact on our sector,” he told AFP, especially since with supply difficulties some watchmakers have gone from “very large orders from their suppliers” and risk finding themselves with large stocks if the market turns.

Other analysts believe there is little reason to panic just yet.

“For now, I would expect the impact to be muted,” Jon Cox, an industry analyst with the Kepler Cheuvreux financial services company, told AFP, adding that he is still expecting to see growth this year of around 10 percent in exports.

READ ALSO: Swiss sweat over size of new superbank

Full steam ahead for China?

However, the Credit Suisse debacle, which threatens tens of thousands of jobs in the financial sector, could take its toll.

“The financial community is an important part of the buying public for the watch industry and there could be impact in local markets, such as Switzerland, on domestic business,” Cox warned, adding though that “this is likely to be offset by tourism”.

For now, Swiss watchmakers are looking to the Chinese market to pick up pace and ensure their 2023 export growth.

When demand was exploding in other markets as they rolled back pandemic protection measures, the watch market in China remained subdued as the country ploughed on with its zero-Covid rules, and then saw infection numbers explode when it abruptly ended that policy late last year.

But watchmakers and experts are expecting that to change with the reopening of the Chinese economy.

Jean-Philippe Bertschy, an analyst with Swiss investment managers Vontobel, warned however that “a return to normalcy” for Chinese watch sales – traditionally Swiss watchmakers’ largest market – will take time.

On the positive side, he told AFP he was confident, given “the level of savings the Chinese had set aside during the health restrictions”.

As for tourism, he cautioned that while Chinese travellers may quickly flock to Asian destinations, “it will take more time before they return to Europe,” due to the continued limited air transport capacity and visa backlogs.

By Nathalie OLOF-ORS

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