‘Whatever it takes’ – why Credit Suisse’s demise will strengthen Switzerland’s place in global finance

AS SWITZERLAND digested the news of Credit Suisse’s takeover by rival UBS, the headlines were unequivocally bleak. The deal is a “historic scandal”, wrote the daily Tages-Anzeiger. It marks the “end of an era”, according to Switzerland’s public broadcaster SRF. The country’s leading daily, Neue Zürcher Zeitung, found even stronger words: “A zombie is gone, but a monster has been created,” read one headline. NZZ commentator Christoph Eisenring summed up the overwhelming sentiment when he wrote that Mar 19, 2023 was a “dark day for Switzerland’s place in global finance”. I disagree.

It is of course quite literally the end of an era when a 167-year-old banking institution that has been near-synonymous with Swiss finance ceases to exist as an independent entity. And there are important, and as-of-yet unanswered, questions about the deal brokered by the Swiss government and its short, medium, and long-term implications. But Credit Suisse’s demise has been years in the making – a slow, painful unravelling marked by disastrous decisions, multi-billion-dollar bets gone awry, a revolving door on the C-suite floor, and steadily eroding confidence. Its 100-billion-Swiss-franc (S$145 billion) market capitalisation in 2007 had withered to a paltry seven billion Swiss francs by last week. If anything, the swift, decisive action over the weekend by a diverse set of public and private stakeholders shows that Switzerland remains trustworthy as a place to bank.

“Don’t compare me to the Almighty. Compare me to the alternative,” is one of US President Joe Biden’s favourite aphorisms. Let’s imagine what Monday, Mar 20, 2023, could have looked like. Overnight, Credit Suisse’s share price would likely have been under further pressure on Asian markets, leading to a sharp drop as soon as Zurich opened on Monday morning. Spooked by a free-falling share price, depositors would have further accelerated withdrawals, quickly topping the previous week’s 10 billion Swiss francs in outflows. Several Credit Suisse counterparties had already curbed any new dealings with the bank, and a number of them could have moved to unwind their positions. With earlier Swiss National Bank lifelines clearly not calming markets, and counterparty risk taking centre stage, investor fears could have spread to other European banks and financial institutions, in turn putting pressure on their share prices and liquidity. And this is how the failure of Silicon Valley Bank in the US combined with Saudi National Bank chairman Ammar al-Khudairy’s poor choice of words in a Bloomberg TV interview (“The answer is absolutely not”, in response to a question about bolstering the Saudi equity stake in Credit Suisse) might have triggered the kind of contagion dynamics that engulfed global financial markets in 2008.