- By Imogen Foulkes
- BBC Geneva correspondent
So goodbye Credit Suisse. Founded in 1856, the bank has been a mainstay of the Swiss financial sector ever since. Although rocked by the 2008 financial crisis, Credit Suisse managed to weather that storm without a government bailout, unlike rival-turned-savior UBS.
More recently, the marketing face of Credit Suisse has been Swiss tennis god Roger Federer. He smiles at the posters of Swiss airports, a symbol of strength, excellence, endurance and reliability.
But behind the brilliant promotion, there were big problems. Divisive management, costly exposure to bankrupt financial firm Greensill Capital, a seedy money laundering case and a drop in customer confidence in recent months that has seen billions of dollars withdrawn from the bank .
All it took to turn those doubts into a stampede was a seemingly off-the-cuff remark from the Saudi National Bank, which owns nearly 10% of Credit Suisse, suggesting it wouldn’t increase its investment.
Shares of Credit Suisse plummeted, and even a statement of confidence from the Swiss National Bank and an offer of $50bn (£41bn) in financial support could not stabilize the situation.
Asleep at the wheel?
How could this have happened?
After the financial crisis of 15 years ago, Switzerland introduced strict “too big to fail” laws for its biggest banks. Never again, it was thought, if the Swiss taxpayer were to bail out a Swiss bank, as happened with UBS.
But Credit Suisse is a “too big to fail” bank. In theory, he had the capital to prevent this week’s disaster.
Also in theory, Swiss financial regulators and the Swiss National Bank monitor these systemically important banks and can intervene before disaster strikes.
It was strange last week to see the rest of the world react with genuine concern to the fall in Credit Suisse shares and to hear, at first, nothing from Switzerland.
Even the Swiss media seemed not to notice the headlines in the Financial Times and seemed more interested in continuing the debate about what support neutral Switzerland should offer Ukraine.
By the time people noticed, such damage had been done that Credit Suisse was beyond backup. The fallout had begun to threaten not only the entire Swiss financial sector, but also that of Europe.
As the government met in emergency session to try to find a solution, one could almost feel the panic in Bern.
It is hard to avoid the conclusion, some Swiss say, that the very people who should have acted to prevent the collapse of Credit Suisse were asleep at the wheel.
Switzerland’s reputation tarnished
This lack of attention is going to be very costly. The takeover of UBS, for the paltry sum of 3 billion dollars, in addition to being a total humiliation for Credit Suisse, risks leaving its shareholders a little poorer.
There will also be job losses, perhaps in the thousands. There are branches of Credit Suisse and UBS in almost every Swiss city. Once the takeover is complete, there will be no point in UBS keeping them all open.
But perhaps the costliest damage of all could be Switzerland’s reputation as a safe place to invest.
Despite scandals over the years related to 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 have clung to this reputation. symbolized by Roger Federer: strong and reliable.
But now? A system that allows a 167-year-old bank to go bankrupt, in the space of a few days, at the cost of many jobs and massive losses in stock market value?
This could cause huge reputational damage. The Swiss banking industry, Swiss financial regulators and its government all say the takeover is the best course of action.
Finally, at the very last minute, it was the only solution. In the next few days, there will be some difficult questions to answer.