Swiss major bank merger: emergency rescue with risks

Status: 03/20/2023 07:34 a.m

The troubled Credit Suisse Bank has been saved for the time being – of all things by arch-rival UBS. This prevents an uncontrolled crash for the time being. But the merger involves risks, because the new giant bank is bigger than “too big to fail”.

By Kathrin Hondl, ARD Studio Geneva

Swiss President Alain Berset spoke of a “very strong solution”. UBS takes over the crisis bank Credit Suisse (CS) for three billion Swiss francs. According to Berset, this is an announcement with far-reaching consequences. For the two banks affected – but also for the stability of the Swiss financial center, for private individuals and companies that need access to funds from the banking system.

And for the stability of the international financial system. “An uncontrolled collapse of Credit Suisse would have incalculable consequences for the country and the international financial world,” stressed the Federal President. “We must do everything to avoid a far-reaching financial crisis.”

Loans of 100 billion Swiss francs

The Swiss National Bank (SNB) supports the deal between the two largest Swiss banks with liquidity support and grants the banks a loan totaling up to CHF 100 billion.

In addition, the Federal Council – i.e. the Swiss government – gave UBS a guarantee of nine billion francs. The government regrets that Credit Suisse was not able to overcome the difficulties on its own, said Finance Minister Karin Keller-Suter.

Takeover to ensure stability of the markets

The takeover of CS by UBS is “not a state solution,” she emphasized. However, any other solution would have resulted in a financial crisis. “The failure of a globally systemically important bank would have caused serious economic disruption in Switzerland, but also worldwide,” said the finance minister.

Switzerland had to assume its responsibility beyond its own national borders. “The Federal Council is convinced that the takeover of CS by UBS will create the basis for more stability – both in Switzerland and internationally,” explained Keller-Suter.

Praise from the FDP – criticism from the SP

It’s a historic decision. With the takeover by UBS, the 167-year history of the traditional bank Credit Suisse comes to an end. The Neue Zürcher Zeitung calls it the “biggest economic earthquake in Switzerland since the UBS rescue in 2008 and the grounding of Swissair in 2001”.

The first reactions to the deal in Swiss politics were correspondingly mixed. Praise came from the FDP. The takeover was necessary to avert major damage to the Swiss financial and business location.

The co-president of the Swiss Social Democratic Party, Cédric Wermuth, wrote indignantly on Twitter that nothing had changed since the 2008 financial crisis. The whole financial system is “sick and absurd” and now the state has to step in to save.

“Best solution in the mess”

Of course you can whine now and say that you should have done it differently so many years ago, says economist Thorsten Hens, Vice Director of the Institute for Banking and Finance at the University of Zurich. But given the mess you’re in now, it’s the best solution.

But it is also clear that the takeover of Credit Suisse by UBS will create a new giant bank in Switzerland – bigger than “too big to fail”. And that, according to Hens, means completely new risks for Switzerland. “It has now become something like South Korea,” explains the economist. There is a large company called Samsung, which essentially determines politics in the end.

You have to be careful, because “when you have such a big company, who wants to save UBS in the end?” Then there could only be nationalization, because there was no other bank that could take on such a large colossus in the end.

UBS takes over Credit Suisse

Kathrin Hondl, ARD Geneva, March 20, 2023 6:40 a.m

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