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.

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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Why does Switzerland defy economic downturns better than its neighbours?

Switzerland’s economy has been more robust and resilient to inflationary and recessionary trends than many other nations’. How is the country managing to always stay on top?

Why does Switzerland defy economic downturns better than its neighbours?

Swiss economy has always been known for its stability, but this has become even more obvious since Russia’s invasion of Ukraine in February 2022 has plunged much of the world into disarray.

Though Switzerland did not totally escape the inflationary trend, its rate has stayed much lower than other countries’: today it stands at 2.6 percent, as compared to 6.9 percent across the eurozone.

Experts attribute this divergence to several factors, including Switzerland’s strong currency and less reliance on Russian energy sources.

READ ALSO: Why Switzerland’s inflation rate has stayed low compared to elsewhere

But there are other reasons for Switzerland’s unwavering prosperity as well.

‘Resilient and agile’

“We go from crisis to crisis and always find that we have done well,” said Heike Scholten, a social scientist studying the attitude of the Swiss population towards the economy. 

“The Swiss economy is resilient and agile.”

The strength of the labour market

Again, unlike its  EU neighbours, where the average unemployment rate is about 6 percent, Switzerland’s is much lower: 2 percent. 

“Thanks to the low unemployment rate, job security is high in Switzerland,” she said, pointing out that when people have confidence in the job market, “they allow themselves to make major purchases.”

Low unemployment / high employment dynamic fuels economic prosperity because it means that as people earn income, they not only spend more (thus boosting consumption), but they also pay taxes which fill up the government’s coffers.

And when that happens, everyone in Switzerland benefits.

The cantons and their finances profit from the strength of the Swiss economy, as the federal government distributes some of its profits to cantons.

For the first time in 14 years, they have posted handsome profits in their 2022 public accounts — all due to prudent budgeting, exceptionally high tax revenues, and the distribution of large profits by the National Bank, which has given 4 billion francs to the cantons.

All this is very good news for the residents, because it means no social or other spending will be cut — and much of it will be boosted.

The government’s role

The Swiss are financially-savvy, which bodes well for the economy.

“In comparison with other European countries, the state plays a moderate role in Switzerland,” Schulte said. “There is a very great awareness in Switzerland that you cannot spend more than you earn.”

In fact, according to the Organisation for Economic Cooperation and Development (OECD), “Switzerland’s public finances rank amongst the best in terms of solidity.”

READ ALSO: Why is Switzerland rich?