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ECONOMY

Switzerland’s crisis-hit Credit Suisse bank faces crucial weekend

Struggling Swiss bank Credit Suisse has until Monday to reassure the market and state regulators about its future as the spectre of a new turbulent week in global finance looms ahead.

Published: 18 March 2023 14:40 CET
Credit Suisse building
Struggling Swiss bank Credit Suisse faces a crucial weekend as it is expected to reassure the market about its future. Photo by Spencer PLATT / Getty Images via AFP

The Zurich-based lender was holding crisis talks this weekend and urgent meetings with Swiss banking and regulatory authorities.

On Friday, the Financial Times reported that Switzerland’s largest bank, UBS, is in talks to buy all or part of Credit Suisse, with the blessing of the Swiss regulatory authorities.

The Swiss National Bank (SNB) “wants the lenders to agree on a simple and straightforward solution before markets open on Monday”, the source said, while acknowledging there was “no guarantee” of a deal.

When contacted by AFP, both SNB and Credit Suisse declined to comment, while UBS and Swiss financial watchdog FINMA did not respond immediately.

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

After a turbulent week on the stock market which forced the SNB to step in with a $53.7 billion lifeline, Credit Suisse was worth just over $8.7 billion on Friday evening.

But an acquisition of this size is dauntingly complex.

Credit Suisse building

Credit Suisse received a $53.7 billion lifeline from the Swiss central bank on Thursday, March 16th. Photo by Fabrice COFFRINI / AFP

While the Swiss Financial Market Supervisory Authority and the SNB have said that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks”, mistrust remains.

‘Serious breaches’

Credit Suisse has been scandal-plagued for the past two years with its own management admitting “material weaknesses” in their “internal control over financial reporting”.

FINMA accused the bank of having “seriously breached its supervisory obligations” in its relationship with the disgraced financier Lex Greensill and his companies.

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

In 2022, the bank suffered a net loss of $7.9 billion, against the backdrop of massive withdrawals of money from its customers. It still expects a “substantial” pre-tax loss this year.

“This is a bank that never seems to get its house in order,” IG analyst Chris Beauchamp commented in a market note this week.

Yet more drastic restructuring, closing its investment banking arm or even a takeover by a rival were being mooted by analysts studying Switzerland’s second-biggest bank, one of 30 deemed of global importance to the international banking system.

Amid fears of contagion after the collapse of two banks in the United States, on Wednesday Credit Suisse’s biggest shareholder said it would “absolutely not” up its stake in the bank for regulatory reasons.

Credit Suisse sign

Credit Suisse suffered a net loss of $7.9 billion in 2022. Photo by Fabrice COFFRINI / AFP

The central bank lifeline raises questions about whether an orderly bankruptcy could happen, in which regulators would take over Credit Suisse and take charge of dismantling it.

Credit Suisse’s CET1 ratio, which compares a bank’s capital to its risk-weighted assets, stood at 14.1 percent at the end of 2022 – slightly less than HSBC but more than that of BNP Paribas, which are among the largest banks in Europe.

It now has a huge amount of liquidity on its hands thanks to the SNB’s intervention.

Merger with UBS

Analysts at financial services giant JPMorgan, insisting that “status quo is no longer an option”, considered the scenario of a takeover by another bank, with UBS, Switzerland’s biggest, “the most likely”.

READ ALSO: How safe is your money in a Swiss bank?

The idea of Switzerland’s biggest banks joining forces regularly resurfaces, but is generally dismissed due to competition issues and risks to the Swiss financial system’s stability, given the size of the bank that would be created by such a merger.

“The question arises because there are many candidates which might be interested,” said David Benamou, chief investment officer of Paris-based Axiom Alternative Investments.

“However, the Credit Suisse management, even if forced to do so by the authorities, would only choose (this option) if they have no other solution,” he said.

The bank is starting to roll out its restructuring plan laid out in October, while UBS has spent several years addressing its own issues.

Following the bank collapses in the United States, Credit Suisse’s credit default swaps shot up.

With the SNB’s help, Credit Suisse gained “precious time” to do a more radical revamp, Morningstar analyst Johann Scholtz said.

He believes the current restructuring is “too complex” and “does not go far enough” to reassure funders, clients and shareholders.

By AFP’s Nathalie Olof-Ors and Christophe Vogt

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ECONOMY

Swiss sweat over size of new superbank

The arranged marriage of UBS and Credit Suisse will create the biggest bank Switzerland has ever seen, with some wondering if the superbank might be too big for its own good.

Published: 22 March 2023 17:15 CET
Swiss sweat over size of new superbank

The deal struck late Sunday prevented the collapse of the country’s second-biggest lender by folding it into the largest.

Even before last week’s dramatic events, both firms were already among the 30 around the world deemed of strategic importance to the global banking system and therefore too big to fail.

Some in business, industry and politics are not convinced that one even bigger bank will turn out for the better.

“Credit Suisse was really the bank of the economy and industry,” said Philippe Cordonier of Swissmem, the national association representing the engineering industry.

For exporting companies, Credit Suisse offered a range of services essential for international transactions, “payments abroad, credits, leasing or currency hedging”, he told AFP.

READ ALSO: How Switzerland reacted to shock UBS buyout of Credit Suisse

Less competition

“This is where the question arises of what skills will be kept,” said Cordonier, as the profiles of the two banks, although close, are not identical.

So far, many questions remain unanswered.

Such a takeover would normally need months of negotiations, but UBS only had a couple of days, under some serious arm-twisting by Swiss authorities.

UBS chief executive Ralph Hamers admitted at an analysts’ conference that he did not yet have all the details of the takeover.

Switzerland is a confederation of 26 cantons and Cordonier said the alternative could be to turn from the national banks to the cantonal banks.

READ ALSO: What are Swiss cantonal banks and does it make sense to move money there?

However, many do not currently have the skills to help companies export to far-off markets such as Asia, and would have to develop them.

The other option is to turn to foreign banks, although they would not possess “in-depth knowledge” of the Swiss market, Cordonier said.

“If there is only one major bank that has the capacity to work abroad, this will restrict the choice of solutions for companies,” said the engineer, who is also concerned about the repercussions on costs “if there is less competition”.

Photo: Fabrice COFFRINI/AFP

SMEs worried

Founded in 1856 by Alfred Escher, the godfather of Swiss railways, Credit Suisse was closely linked to the country’s economic development.

The bank financed the expansion of the rail network, the construction of the Gotthard Tunnel beneath the Alps, and the start-up of Swiss companies that
went on to become leaders in their sector.

“Twenty-five years ago, there were four big Swiss banks,” recalled the Swiss Federation of Companies, which represents small and medium enterprises.

The banking sector has already seen major convergence in 1998 when the Swiss Bank Corporation merged with the Union Bank of Switzerland to form the modern UBS.

“The concentration into a smaller number of banks reduces competition and makes it more difficult to obtain good financing conditions for SMEs,” the federation said in a statement.

The orchestrated takeover has also triggered virulent criticism among Swiss political circles, of all stripes.

READ MORE: How safe is your money in a Swiss bank? 

Politicians have called for the further tightening of regulations – which are already strict in Switzerland – in the face of this new giant, which will dominate the nation’s banking sector.

Swift solution

A partial nationalisation could “at least” have been considered, said Tobias Straumann, professor of economic history at the University of Zurich, told the Berner Zeitung newspaper.

Carlo Lombardini, a lawyer and professor of banking law at the University of Lausanne, said the UBS takeover “was surely the only swift and feasible solution”.

However, he would have preferred another outcome, such as a takeover “by a foreign bank”, he told AFP.

“But a large foreign group doesn’t do acquisitions in a weekend,” he admitted.

The other solution would have been to nationalise Credit Suisse “to enhance the good bank” and consolidate the poor assets into a “bad bank” to be liquidated, he explained.

However, it is already too late for such what-ifs, Lombardini said.

“It’s like wondering what would have happened if Napoleon had not lost at Waterloo,” he said.

“The real problem is we are going to have an even more ‘too big to fail’ bank,” he warned.

By Nathalie OLOF-ORS

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