published in the Financial Times
by Sam Jones in Zurich on March 20 2023
For most people in Switzerland, the news that Credit Suisse was to be saved from collapse by local rival UBS was met with stunned disbelief.
Even the financially tuned denizens of Paradeplatz, Zurich’s banking centre, had happily gone into the weekend with no clue that the lender — regarded as a national institution — was facing an existential crisis, regardless of its recent painful travails.
“I’m horrified. Just horrified,” said Roger Köppel, a politician with the rightwing Swiss Peoples’ party and editor-in-chief of weekly economic magazine Weltwoche. “It’s a catastrophe. Credit Suisse is part of our history — it’s almost as old as our history! It is the epitome of a Swiss bank.”
For Köppel and many others, serious questions must now be answered about how such an illustrious history was brought to such a sudden end.
Just a week ago regulator Finma and the Swiss National Bank were confidently reassuring investors that Credit Suisse faced no issues of concern with its balance sheet or access to liquidity.
But in a series of secret, government-orchestrated weekend meetings in Bern, they have forced the shotgun marriage of the bank, promised billions in guarantees to its reluctant suitor and vaporised SFr16bn ($17bn) of subordinate bonds, infuriating fixed-income investors around the world.
“The fall of such a household name in Zurich is a disgrace to the Swiss financial centre and the crisis is, unfortunately, not restricted to Credit Suisse,” said Thomas Borer, a former senior Swiss diplomat, onetime Credit Suisse employee and leader of the task force that once helped Swiss banks settle their debts to Holocaust survivors.
“Decades of mismanagement in many banks — let us not forget that UBS was saved in 2008 by the Swiss taxpayer — have not only ruined Credit Suisse but ultimately smeared the Swiss brand,” he added. “And that is what makes me angry.”
As soon as news of the government’s controversial deal landed — announced at a hastily convened press conference on Sunday evening and enacted using emergency enabling powers available to the cabinet — Swiss MPs began to react in shock.
An emergency recall of parliament — which had not otherwise been due to meet until May — is now on the cards, with two of the country’s four largest parties already supporting the move. Between them they have more than enough votes to trigger a special parliamentary session.
Under Switzerland’s highly devolved political system, parliament is needed to ratify emergency decisions taken by the government. It is unclear how easily it will approve the raft of liquidity measures and credit guarantees Bern has promised UBS to ease its digestion of its rival.
The Social Democratic party has already promised to vote for a special parliamentary inquiry to hold the banks’ and the government’s feet to the flame — and the sentiment is almost universally shared across the political spectrum.
“We demand a complete account of the political responsibility,” said the party’s co-president Cedric Wermuth in an emailed statement. “This applies to Finma, to the Swiss National Bank, and to former and current officials in the finance department,” he added, saying management at Credit Suisse had to be held “accountable and liable” for the damage they had caused.
Credit Suisse’s roots in Swiss society are deep. Its founder Alfred Escher was the Ur-Swiss patrician:a powerful businessman and government minister revered as the industrial father of Switzerland. As well as founding Credit Suisse’s forerunner, the Schweizerische Kreditanstalt (the name changed in 1992), he was the creator of insurers Swiss Life and Swiss Re, and of ETH, Zurich’s world-leading university.
It was Credit Suisse, meanwhile, that bankrolled Switzerland’s famous railways.
“The disappearance of Credit Suisse is also a loss to Swiss identity,” said Hans Gersbach, a professor of economics at ETH. “It was instrumental in the development of modern Switzerland to its current level of material wellbeing.”
Alan Mudie, chief investment officer of Zug-based Woodman Asset Management, who has worked in Swiss banking for the past 30 years, said “Credit Suisse played an absolutely central role in the development of the Swiss economy over the last century and a half so to see it disappear so abruptly is shocking.”
Some kind of deal, Mudie said, was nevertheless essential. “By the end of last week, the timeframe for Credit Suisse to turn itself around after months of problems had shrunk from years to hours,” Mudie added, noting that the speed of the resolution reflected well on the Swiss government. However, he said the decision to wipe out bondholders looks increasingly problematic.
Jan-Egbert Sturm, director of the KOF Swiss economic institute, said the deal was “an important and necessary step”, adding: “what we didn’t want was another Lehman brothers — especially one triggered from Switzerland”.
However, he said the issue could have been dealt with earlier. And indeed, for many, there are now questions about how the Swiss authorities allowed events to spiral so quickly and did not step in earlier to reassure the market and preserve Credit Suisse as a going concern.
“If the snowball starts falling down the hill then you have a problem,” said Sturm, “and the way in which support was communicated last week wasn’t sufficient to stop the snowball from rolling.”
For Köppel and the Swiss People’s party, which is supported by one in four Swiss voters, there are questions about why the government did not simply take over Credit Suisse itself, to preserve a national institution.
“I’m not a protectionist, I’m a market guy, but this is a very special case,” said Köppel. “The way this takeover has been politically orchestrated is an attack on our rule and law-based order.”
The SVP has publicly questioned the motivations of newly installed finance minister Karin Keller-Sutter, who is a nominee of the Swiss Liberals party.
But even those who support Credit Suisse and its peers as institutions have little time left for the bankers who work there.
Borer recalls how once Swiss politicians would visibly stand to attention, like soldiers, when the country’s illustrious bankers came to parliament. Now, the respect is gone. “The love affair is over,” said Borer, who sees fresh regulation in Switzerland as a certainty.
The public is equally jaded with the bankers they once looked up to.
In the late 1970s, in an early effort at public PR, Credit Suisse gave away thousands of brightly coloured skiing hats emblazoned with its initials. As the Luzerner Zeitung, a Swiss newspaper, laconically noted this year, the hats — which now sell for more than SFr80 apiece — have been a better investment over the past half century than shares in the bank.