- Author: Imogen Foulkes
- BBC Geneva Correspondent
So farewell to Credit Suisse. Founded in 1856, the bank has been a mainstay of the Swiss financial sector ever since. Although Credit Suisse was hit by the 2008 financial crisis, it managed to weather the storm without a government bailout, unlike rival savior UBS.
Recently, Credit Suisse’s marketing face has been Swiss tennis god Roger Federer. He smiles from posters in Swiss airports, a symbol of strength, excellence, endurance and reliability.
But behind the glossy ad campaign were some big problems. Disorganized management, expensive exposure to failed financial firm Greensill Capital, an ugly money-laundering case and the erosion of customer confidence in recent months, when billions were withdrawn from the bank.
All it took to turn those doubts into consternation was a note from Saudi Arabia’s central bank, which owns nearly 10 percent of Credit Suisse, suggesting it would not increase its holdings.
Shares in Credit Suisse went into freefall, and even a vote of confidence from the Swiss National Bank and an offer of $50bn (£41bn) in financial support failed to stabilize the situation.
Asleep at the wheel?
How could this happen?
After the financial crisis 15 years ago, Switzerland introduced strict so-called “too big to fail” laws for its biggest banks. Never again, the thought went, should Swiss taxpayers 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 disaster.
Also in theory, Swiss financial regulators and the Swiss National Bank keep an eye on these systemically important banks and can intervene before disaster strikes.
It was strange last week to see the rest of the world reacting with real concern to the collapse of Credit Suisse shares and to hear nothing from Switzerland at first.
Even the Swiss media didn’t seem to notice the Financial Times headlines, and seemed more interested in the ongoing debate about how much support neutral Switzerland should provide Ukraine.
By the time people noticed, such damage had been done that Credit Suisse could not be saved. The decline had begun to threaten not only the entire Swiss but also the European financial sector.
As the government met in emergency session to try 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 Credit Suisse’s collapse were asleep at the wheel.
Switzerland’s reputation was damaged
This lack of attention will be very costly. The takeover of UBS for the paltry sum of $3 billion, in addition to being a complete humiliation for Credit Suisse, will likely leave its shareholders a little poorer.
Jobs will also be lost, perhaps thousands. Credit Suisse and UBS branches are in almost every city in Switzerland. Once the takeover is complete, it makes no sense for UBS to keep them all open.
But perhaps the most costly damage could be Switzerland’s reputation as a safe place to invest.
Despite scandals involving the secret bank accounts of dictators (including Ferdinand Marcos of the Philippines, Congolese dictator Mobutu Sese Seko, and many others) or money laundering by drug lords and tax evaders, Swiss banks held on to that reputation. symbolizes Roger Federer: strong and reliable.
But now? A system that allows a 167-year-old bank to go belly up in a matter of days at the cost of losing many jobs and huge shares?
It can cause huge reputational damage. The Swiss banking sector, Swiss financial regulators and its government all say a takeover is the best solution.
Finally, at the very last moment, it was the only solution. There will be difficult questions to answer in the coming days.