Experts caution that the collapse of Credit Suisse has seriously damaged Switzerland's standing as the top hub for wealth management, casting doubt on its reputation for stability, regulation, and corporate governance.
After months of fighting a crisis of confidence brought on by years of scandals and losses, Credit Suisse's demise last week was sealed in a matter of days when Swiss authorities arranged for a takeover of the bank by larger rival UBS.
In 2008, UBS itself required government assistance after making a disastrous foray into American mortgage securities.
According to Arturo Bris, professor of finance at the International Institute for Management Development (IMD) in Lausanne, the collapse of Credit Suisse and its aftermath "is going to be very damaging," adding that it might even help rival financial centers.
According to a 2021 Deloitte study, Switzerland is the world's largest financial center, surpassing Britain and the United States. It manages $2.6 trillion in foreign assets. But it has competition from other cities, particularly Singapore, which has expanded quickly in recent years, as well as Luxembourg.
"The bankers in Singapore are going to be uncorking the champagne bottles," Bris told Reuters.
Moves like the choice to wipe out the holdings of Credit Suisse bondholders, he claimed, had undermined Switzerland's reputation as a predictable, stable nation.
Holders of Credit Suisse AT1 bonds will receive nothing under the takeover agreement, while shareholders—who typically receive less compensation than bondholders—will receive $3.23 billion.
Few people expected Credit Suisse to fail, even though the AT1 prospectus made it clear that hybrid (AT1) holders would not receive any value back.
The Swiss Bankers Association has made an effort to put a brave face on the crisis by portraying the government, central bank, and regulator's rescue plan as a sign of fortitude.
"The Swiss financial sector was able to address a major issue of a significant player," SBA Chairman and former UBS CEO Marcel Rohner told reporters on Tuesday.
"In that sense I also see a prosperous future for the financial centre because we have hundreds of very well capitalised banks and very successful wealth management and asset management banks."
Nevertheless, the number of banks has decreased, from 356 in 2002 to 239 in 2021. Since 2011, there are now 91,000 fewer employees than there were in 2011.
Others expressed greater pessimism about the future, highlighting a reluctance to face Credit Suisse's errors or accept responsibility for the fallout.
"There are a lot of open questions: the use of emergency law overriding the views of shareholders or the treatment of bond holders," said Stefan Legge, head of tax and trade policy at the University of St. Gallen's IFF Institute for Financial Studies.
"Maybe some people are a bit delusional – and really believe they are doing a great job."
Since the PLB was not yet a part of Swiss law, Switzerland used emergency legislation to allow it. The PLB will give Credit Suisse access to up to 100 billion Swiss francs in liquidity.
The emergency law also permitted the takeover to proceed without shareholder approval, which is perhaps the most contentious aspect.
Legge suggested that the failure should act as a wake-up call and that new legislation to enhance corporate governance may be introduced.
In contrast to countries like Britain where senior managers may face criminal penalties, Switzerland has few mechanisms for holding top bankers individually accountable for mismanagement.
Politicians and labor groups have also expressed their displeasure with the rescue, which may require the taxpayer to foot the bill for losses of up to 9 billion francs.
Since banking secrecy began to wane as other nations sought to crack down on citizen tax evasion, Switzerland's oversized banking sector has been under pressure.
According to IMF data, the financial sector's contribution to the Swiss economy has also decreased, dropping from 9.9% of Swiss GDP in 2002 to 8.9% in 2022 as sectors like pharmaceuticals gained importance in a nation with the third-highest GDP per capita in the world.
According to BAK Economics, a Swiss research organization, the banking industry would be spared the worst effects of the scandal. Although the effect on the overall economy would be minimal, it was estimated that up to 12,000 Swiss jobs could be lost.
Since banking secrecy began to wane as other nations sought to crack down on citizen tax evasion, Switzerland's oversized banking sector has been under pressure.
According to IMF data, the financial sector's contribution to the Swiss economy has also decreased, dropping from 9.9% of Swiss GDP in 2002 to 8.9% in 2022 as sectors like pharmaceuticals gained importance in a nation with the third-highest GDP per capita in the world.
According to BAK Economics, a Swiss research organization, the banking industry would be spared the worst effects of the scandal. Although the effect on the overall economy would be minimal, it was estimated that up to 12,000 Swiss jobs could be lost.
"I think it's only a matter of time."
(Source:www.reuters.com)
After months of fighting a crisis of confidence brought on by years of scandals and losses, Credit Suisse's demise last week was sealed in a matter of days when Swiss authorities arranged for a takeover of the bank by larger rival UBS.
In 2008, UBS itself required government assistance after making a disastrous foray into American mortgage securities.
According to Arturo Bris, professor of finance at the International Institute for Management Development (IMD) in Lausanne, the collapse of Credit Suisse and its aftermath "is going to be very damaging," adding that it might even help rival financial centers.
According to a 2021 Deloitte study, Switzerland is the world's largest financial center, surpassing Britain and the United States. It manages $2.6 trillion in foreign assets. But it has competition from other cities, particularly Singapore, which has expanded quickly in recent years, as well as Luxembourg.
"The bankers in Singapore are going to be uncorking the champagne bottles," Bris told Reuters.
Moves like the choice to wipe out the holdings of Credit Suisse bondholders, he claimed, had undermined Switzerland's reputation as a predictable, stable nation.
Holders of Credit Suisse AT1 bonds will receive nothing under the takeover agreement, while shareholders—who typically receive less compensation than bondholders—will receive $3.23 billion.
Few people expected Credit Suisse to fail, even though the AT1 prospectus made it clear that hybrid (AT1) holders would not receive any value back.
The Swiss Bankers Association has made an effort to put a brave face on the crisis by portraying the government, central bank, and regulator's rescue plan as a sign of fortitude.
"The Swiss financial sector was able to address a major issue of a significant player," SBA Chairman and former UBS CEO Marcel Rohner told reporters on Tuesday.
"In that sense I also see a prosperous future for the financial centre because we have hundreds of very well capitalised banks and very successful wealth management and asset management banks."
Nevertheless, the number of banks has decreased, from 356 in 2002 to 239 in 2021. Since 2011, there are now 91,000 fewer employees than there were in 2011.
Others expressed greater pessimism about the future, highlighting a reluctance to face Credit Suisse's errors or accept responsibility for the fallout.
"There are a lot of open questions: the use of emergency law overriding the views of shareholders or the treatment of bond holders," said Stefan Legge, head of tax and trade policy at the University of St. Gallen's IFF Institute for Financial Studies.
"Maybe some people are a bit delusional – and really believe they are doing a great job."
Since the PLB was not yet a part of Swiss law, Switzerland used emergency legislation to allow it. The PLB will give Credit Suisse access to up to 100 billion Swiss francs in liquidity.
The emergency law also permitted the takeover to proceed without shareholder approval, which is perhaps the most contentious aspect.
Legge suggested that the failure should act as a wake-up call and that new legislation to enhance corporate governance may be introduced.
In contrast to countries like Britain where senior managers may face criminal penalties, Switzerland has few mechanisms for holding top bankers individually accountable for mismanagement.
Politicians and labor groups have also expressed their displeasure with the rescue, which may require the taxpayer to foot the bill for losses of up to 9 billion francs.
Since banking secrecy began to wane as other nations sought to crack down on citizen tax evasion, Switzerland's oversized banking sector has been under pressure.
According to IMF data, the financial sector's contribution to the Swiss economy has also decreased, dropping from 9.9% of Swiss GDP in 2002 to 8.9% in 2022 as sectors like pharmaceuticals gained importance in a nation with the third-highest GDP per capita in the world.
According to BAK Economics, a Swiss research organization, the banking industry would be spared the worst effects of the scandal. Although the effect on the overall economy would be minimal, it was estimated that up to 12,000 Swiss jobs could be lost.
Since banking secrecy began to wane as other nations sought to crack down on citizen tax evasion, Switzerland's oversized banking sector has been under pressure.
According to IMF data, the financial sector's contribution to the Swiss economy has also decreased, dropping from 9.9% of Swiss GDP in 2002 to 8.9% in 2022 as sectors like pharmaceuticals gained importance in a nation with the third-highest GDP per capita in the world.
According to BAK Economics, a Swiss research organization, the banking industry would be spared the worst effects of the scandal. Although the effect on the overall economy would be minimal, it was estimated that up to 12,000 Swiss jobs could be lost.
"I think it's only a matter of time."
(Source:www.reuters.com)
