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ECONOMY

Switzerland’s crisis-hit Credit Suisse bank faces crucial weekend

Struggling Swiss bank Credit Suisse has until Monday to reassure the market and state regulators about its future as the spectre of a new turbulent week in global finance looms ahead.

Credit Suisse building
Struggling Swiss bank Credit Suisse faces a crucial weekend as it is expected to reassure the market about its future. Photo by Spencer PLATT / Getty Images via AFP

The Zurich-based lender was holding crisis talks this weekend and urgent meetings with Swiss banking and regulatory authorities.

On Friday, the Financial Times reported that Switzerland’s largest bank, UBS, is in talks to buy all or part of Credit Suisse, with the blessing of the Swiss regulatory authorities.

The Swiss National Bank (SNB) “wants the lenders to agree on a simple and straightforward solution before markets open on Monday”, the source said, while acknowledging there was “no guarantee” of a deal.

When contacted by AFP, both SNB and Credit Suisse declined to comment, while UBS and Swiss financial watchdog FINMA did not respond immediately.

READ ALSO: Reader question: Will Credit Suisse crisis impact my savings in Switzerland?

After a turbulent week on the stock market which forced the SNB to step in with a $53.7 billion lifeline, Credit Suisse was worth just over $8.7 billion on Friday evening.

But an acquisition of this size is dauntingly complex.

Credit Suisse building

Credit Suisse received a $53.7 billion lifeline from the Swiss central bank on Thursday, March 16th. Photo by Fabrice COFFRINI / AFP

While the Swiss Financial Market Supervisory Authority and the SNB have said that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks”, mistrust remains.

‘Serious breaches’

Credit Suisse has been scandal-plagued for the past two years with its own management admitting “material weaknesses” in their “internal control over financial reporting”.

FINMA accused the bank of having “seriously breached its supervisory obligations” in its relationship with the disgraced financier Lex Greensill and his companies.

READ ALSO: Credit Suisse: The list of scandals stalking Switzerland’s second largest bank

In 2022, the bank suffered a net loss of $7.9 billion, against the backdrop of massive withdrawals of money from its customers. It still expects a “substantial” pre-tax loss this year.

“This is a bank that never seems to get its house in order,” IG analyst Chris Beauchamp commented in a market note this week.

Yet more drastic restructuring, closing its investment banking arm or even a takeover by a rival were being mooted by analysts studying Switzerland’s second-biggest bank, one of 30 deemed of global importance to the international banking system.

Amid fears of contagion after the collapse of two banks in the United States, on Wednesday Credit Suisse’s biggest shareholder said it would “absolutely not” up its stake in the bank for regulatory reasons.

Credit Suisse sign

Credit Suisse suffered a net loss of $7.9 billion in 2022. Photo by Fabrice COFFRINI / AFP

The central bank lifeline raises questions about whether an orderly bankruptcy could happen, in which regulators would take over Credit Suisse and take charge of dismantling it.

Credit Suisse’s CET1 ratio, which compares a bank’s capital to its risk-weighted assets, stood at 14.1 percent at the end of 2022 – slightly less than HSBC but more than that of BNP Paribas, which are among the largest banks in Europe.

It now has a huge amount of liquidity on its hands thanks to the SNB’s intervention.

Merger with UBS

Analysts at financial services giant JPMorgan, insisting that “status quo is no longer an option”, considered the scenario of a takeover by another bank, with UBS, Switzerland’s biggest, “the most likely”.

READ ALSO: How safe is your money in a Swiss bank?

The idea of Switzerland’s biggest banks joining forces regularly resurfaces, but is generally dismissed due to competition issues and risks to the Swiss financial system’s stability, given the size of the bank that would be created by such a merger.

“The question arises because there are many candidates which might be interested,” said David Benamou, chief investment officer of Paris-based Axiom Alternative Investments.

“However, the Credit Suisse management, even if forced to do so by the authorities, would only choose (this option) if they have no other solution,” he said.

The bank is starting to roll out its restructuring plan laid out in October, while UBS has spent several years addressing its own issues.

Following the bank collapses in the United States, Credit Suisse’s credit default swaps shot up.

With the SNB’s help, Credit Suisse gained “precious time” to do a more radical revamp, Morningstar analyst Johann Scholtz said.

He believes the current restructuring is “too complex” and “does not go far enough” to reassure funders, clients and shareholders.

By AFP’s Nathalie Olof-Ors and Christophe Vogt

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ECONOMY

Why is Switzerland Europe’s ‘most competitive’ country?

Not only is Switzerland the most competitive in Europe, but it is also in the second place worldwide.

Why is Switzerland Europe's 'most competitive' country?

In its new annual ranking, the IMD Business Institute named Switzerland the world’s second-best in terms of competitiveness. 

Singapore is in the first  place, which means Switzerland is in the top spot among European nations.

What does ‘competitiveness’ mean?

For the purpose of this survey, among the most reputable globally, IMD ranked 67 countries.

It examined and compared each nation’s GDP and productivity, along with political, social and cultural factors.

“Governments play a crucial role too, by providing an environment characterized by efficient infrastructure, institutions, and policies,” IMD said.

In what areas is Switzerland particularly competitive?

It is in the first place in terms of government efficiency — the position it has held since 2022.

Within this particular category, the country excels in public finance and institutional organisation.

It is also at the top for its infrastructure, particularly for health services, environment, as well as educational system.

In this category too, the country has maintained its first place for several years.

Switzerland also scores relatively high (second place) for productuvity and efficiency, as well as infrastructure for scientific research.

Where does Switzerland rank less well?

It is in the 16th place for international trade, in the 15th for ‘attitudes and values’.

And it should come as no surprise to anyone living here that the country ranks in the 61st place (that is, near the bottom), in terms of prices.
 

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