Weeks after the collapse of Credit Suisse and its takeover by UBS engineered by the government, the situation in Switzerland does not seem to be calming down. Quite the reverse. The vote against the rescue by the lower house of the Swiss parliament, insisting on conditions for the US$122 billion guarantees for the deal, dramatised popular and political dissent. The government has maintained that the vote was purely symbolic but legal and political commentators differ.
Meanwhile, the Swiss Office of the Attorney General has opened an inquiry into potential criminal liability among government officials, regulators, and bank executives involved in the rescue plan. Ueli Maurer, who was Switzerland’s finance minister until last December, has responded to criticism of his previous inaction by stating that he did not trust his cabinet colleagues to keep his plans secret.
How could all this happen in a country whose financial sector depends on its reputation for stability and trustworthiness? Well, here are a few pointers. Switzerland’s political system, according to Bloomberg figures, has essentially kept the same balance of left/right political parties for over a century - a status quo that looked like stability for a long time, but now is looking alarmingly like rigidity and inflexibility.
The Swiss regulator, FINMA, looks likely to acquire powers to fine miscreants, which it never had before, in the aftermath of the debacle. However, some 30 Singaporean investors in Credit Suisse’s Additional Tier One Capital or AT1 bonds, whose holdings were wiped out by the Swiss government rescue, are now reportedly suing the Swiss government.
“Can you trust the system in Switzerland now?” Mark Holman, CEO of TwentyFour Asset Management, was quoted as saying in the Financial Times. “Some people will be saying ‘I’m not going to buy Swiss risk because I don’t trust the regulatory backdrop’.”
And Swiss private bank Reyl has just been fined $6.3 million in France for facilitating tax evasion by Reyl clients.
A risk premium of any kind is practically a nightmare scenario for Switzerland’s financial system. But its political class and ruling elite look unlikely to respond effectively.
Bloomberg cited figures from the Swiss Broadcasting Corporation showing that the Swiss public trust none of the current major political parties regarding their statements and actions during the Credit Suisse crisis. The leading populist Swiss People’s Party is among the least trusted.
Mark Pieth, a criminal law professor at the University of Basel, was quoted in Swiss media as saying that Swiss politics and business urgently need to become more creative, and with “other leaders at the helm than those who got us into this mess in the first place”.
Based on the aggregation of evidence, change couldn’t come soon enough.