Credit Suisse collapse: consequences and considerations for the future

30 Mar , 2023 - Fiduciaria Lago

Two weeks have passed since the collapse of Credit Suisse which shook the markets, shareholders and questioned the image of credibility and solidity that has always been considered the international business card of the Swiss banking system all over the world.

What happened to Credit Suisse

From what emerges from the current scenario, the onerous situation that has occurred is attributable to the attitude of an international bank which over time has lost sight of the distinctive cornerstones of the Swiss financial attitude, typically moderate and prudent, in favor of profits and earnings.

Therefore, not a single event but rather an operational line characterized by single onerous episodes led to the collapse of Credit Suisse. Criminal convictions for money laundering on behalf of drug traffickers, a corruption case in Mozambique, spying on a former collaborator, disclosing sensitive client data to international media during the pandemic, to name a few.

The Swiss banking supervisory authority had in fact warned the credit institution several times, before the collapse a few days ago.

A risk framework that analysts believe was obvious and easily identifiable which is considered the responsibility of a management more oriented towards investment banking and less towards private banking and Swiss business.

The acquisition by UBS

“This is a trade solution, not a bailout,” Finance Minister Karin Keller-Sutter said.

One of the first consequences of UBS's acquisition of the second largest Swiss bank is that UBS will become disproportionately large.

According to the Federal Council, the acquisition of Credit Suisse by UBS was the best alternative and reiterates that "all other options were, in our eyes, riskier for the state, the tax payer, the financial center and the markets".

Swiss taxpayers will have to pay 9 billion Swiss francs if things go wrong. The Swiss National Bank has pledged to print up to 100 billion francs to ensure sufficient funds for the new UBS for day-to-day operations.

The finance minister wanted to underline her understanding of the anger of the population for aid to the big players, especially where this scenario is the result of obvious managerial errors, which occurred in the face of substantial remunerations.

The legal issue

What is forgotten, however, is that the Swiss government, by effectively imposing the acquisition of Credit Suisse without going through the vote of the shareholders, circumvented the law by affecting property rights in Switzerland.

So should investors in Switzerland henceforth expect to be expropriated without a legal basis as stated by Swiss law professor Peter V Kunz?

Many also believe that this emergency takeover has shattered the credibility image of the Swiss banking sector around the world.

UBS chairman Colm Kelleher reassured that this deal represents a huge opportunity and that UBS will remain robust.

The future scenario after the acquisition

The question to be asked, to which only time will give a real answer, is whether investors, savers and companies will still have enough trust to continue operating with this banking giant and, in general, with the Swiss banking system and what will be the attitude of investors in Europe after what happened to Silicon Valley Bank, Credit Suisse and the current situation affecting Deutsche Bank.

Perhaps the concept of "to big to fail" with the new size of UBS (too big to fail), due to the correspondence of the banking system with the concept of the Swiss economy, may no longer be sufficient as a guarantee of solidity for the globalized system if the necessary changes will not be made, to avoid new emblematic bankruptcies, just like the collapse of Credit Suisse, which we have been witnessing in recent years.