Punch-drunk Credit Suisse was fated to fall

AN EXTRAORDINARY weekend in Switzerland culminated in the collapse of Credit Suisse into the wary embrace of its great rival, UBS. The latter did not want to have to buy the former. For all the Swiss authorities’ insistence that this was a takeover – a “commercial solution” according to the finance minister – UBS had no choice but to make a deal work. US Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen gave the game away, welcoming the move by “Swiss authorities to support financial stability”.

For all the frantic efforts of the past few days, UBS’ leadership knew they might have to step in to shore up Swiss Finance Inc. Six months ago, a top UBS executive told the Official Monetary and Financial Institutions Forum (OMFIF) that he put the chance of a forced takeover of Credit Suisse at around 30 per cent. At the time, Credit Suisse’s market capitalisation was around US$20 billion. On the night of Sunday (Mar 19), UBS picked up a bank with assets of close to US$600 billion for just US$3.5 billion.

What lessons can be learned from this crisis? First, it’s a huge embarrassment for the Swiss authorities. Since the 2008 financial crisis, they had made the country’s two big banks carry substantially higher core capital than their global competitors in other jurisdictions, much to the chagrin of their respective leaderships. The so-called “Swiss finish” could not prevent the huge withdrawal of deposits – as much as 10 billion Swiss francs (S$14.4 billion) a day – finishing off Credit Suisse.