Ironically, in 2008, when the Swiss National Bank (SNB) and the Confederation flew to the aid of UBS, Credit Suisse smelled the opportunity of the century. The bank had managed to convince its counterpart to merge, convinced that a state bailout was the worst that could happen to it. Regulators immediately put a stop to it, seeing all the problems and risks that such a juggernaut would create. We know the rest.
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Now, these same regulators would be pushing for a takeover, partial or total, of Credit Suisse by UBS. After months – even years – of turmoil that culminated in a week of financial turmoil, Credit Suisse would disappear, wholly or in part, into UBS. The conditions for this rapprochement, if it really materializes by the end of the weekend, will be crucial.
Leaving aside the scenario of bankruptcy, unthinkable given the financial consequences it would imply, the worst option could well be a complete acquisition of Credit Suisse. Firstly because we see how systemic banking institutions are likely to destabilize an entire country: why create a new giant? Then, because the country would lose a major player in its banking sector, competition would be reduced and the new entity could have a dominant position. The social cost would no doubt be significant since the merged bank would probably not need all of Credit Suisse’s thousands of employees. To add to the national slate: UBS would be asking for a safety net from the Swiss authorities in the event of a takeover of its rival. In other words, that the Confederation offers him guarantees, that is to say to bear legal costs or losses.
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This, while this part of the reconciliation is not necessarily necessary. The Swiss entity of Credit Suisse is by far the healthiest. Considered the “jewel” of the bank, it has been a beneficiary for years and sponsors the difficulties of the rest of the group. Since it is a legal entity in its own right, it can easily operate separately.
The solution of a partial takeover, wealth management and asset management, would therefore be the lesser evil. Obviously this outcome, if it is the alternative to bankruptcy, is preferable. But time is running out to maintain the confidence of Swiss customers, logically shaken by the latest events. In any case, a dismantling of Credit Suisse will not take away the feeling of a huge fiasco which the whole country will, one way or another, pay the price for. Of course, we can deplore a financial crisis that falters a bank that lacks neither capital nor liquidity, we can be offended by speculative funds that sell the security short or be surprised at the role of the Saudis.
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However, this would hide the face: the problems of risk culture of Credit Suisse have been known for years, evidenced by the succession of scandals, losses, fines. If, coming out of the 2008 financial crisis, the new regulations gave us the impression that the problem of too-big-to-fail banks was under control, here it is shaken. Questions will have to be asked: about the very limited means available to Finma, which has observed “serious shortcomings” at Credit Suisse for years. But also on those responsible and on those who pocketed millions, year after year, when the bank was already losing money.
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