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February 2024
AAM Magazine
February 2024
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Analysis: A Swiss fix

Credit Suisse
By Paul Mackintosh   
March 22, 2023

The Credit Suisse saga appears to have come to an end.

After years of recurrent scandals and attempts at internal reform, Switzerland’s second largest bank was especially hard hit by the recent run on the banking sector following the collapse of Silicon Valley Bank in the US. Its share price plunged by a third over the past month and the central bank then stepped in to extend it a US$54 billion credit line. "This additional liquidity will support Credit Suisse's core businesses and its customers, as Credit Suisse takes the necessary steps to create a leaner, more focused bank," the beleaguered lender said then.

However, confidence was not restored; according to a report in The Wall Street Journal, there was some $10 billion in withdrawals from Credit Suisse accounts in one day.

In the end, the only solution short of total failure was the $3.2 billion merger of Credit Suisse with Switzerland’s largest banking group UBS, orchestrated by the central bank and Switzerland’s Financial Market Supervisory Authority. “With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy,” according to an announcement on March 19 from the central bank, which also agreed to provide some $108 billion in liquidity to facilitate the deal.

But early declines in Asian stock markets after the merger announcement suggest that the news has not reassured markets.

This drama can't help but fuel fears that Switzerland is a ‘bankistan’, where close ties between the influential financial sector and regulators in a relatively small nation have heightened risks of poor supervision and slack enforcement.

Recall that the “Suisse Secrets” scandal in February 2022 regarding Credit Suisse’s client list of miscreants including organised crime money launderers, drug lords, and dictators was reported by an international consortium of journalists outside the jurisdiction of Swiss courts, which could have prosecuted reporters under draconian client confidentiality rules introduced in 2015. Rejecting moves to reform these regulations in May 2022, a Swiss parliamentary committee stated that changes were unnecessary “because Swiss banks have developed considerably in recent years with regard to the prevention of money laundering and other white-collar crime”.

There were some who claimed that the “Suisse Secrets” affair was not public-interest reporting but was orchestrated by Switzerland’s financial competitors. Hopefully attitudes have matured.

There is also the question of what this debacle will do to Switzerland’s reputation as a safe haven for private wealth. At least Lehman Brothers, when it declared bankruptcy in September 2008, had nothing like the succession of scandals on its books that Credit Suisse exhibited. After years of recurrent crises, Switzerland’s regulators were unable to prevent the implosion of its second largest bank. What does that say?