7.5 C
Wednesday, February 28, 2024

The collapse of Credit Suisse could seriously damage Switzerland as a banking leader

Must read

- Advertisement -

The collapse of Credit Suisse has dealt a serious blow to Switzerland’s reputation as the world’s leading wealth management hub, experts warn. There are questions about stability, regulation and corporate governance in the country.

Wracked by years of scandals and losses, Credit Suisse has been battling a crisis of confidence for months. Its collapse was sealed in just a few days, and the takeover of the bank by the eternal competitor UBS was brokered by the Swiss authorities.

The collapse of Credit Suisse and its aftermath “will be very damaging,” said Professor Arturo Bris of the International Institute for Management Development in Lausanne. At the same time, he added that this could bring benefits to competing financial centres.

According to a 2021 Deloitte study, Swiss financial institutions manage $2.6 trillion worth of international assets, making Switzerland the world’s largest financial center ahead of the United Kingdom and the United States. However, it has to do with competition from other resorts. We are talking about Luxembourg and Singaporewhich has developed rapidly in recent years.

- Advertisement -

“Singapore bankers are opening bottles of champagne,” said Bris.

Read also: End of Credit Suisse. The giant falls with a thud

A good face for a bad game

The Swiss Bankers Association (SBA) tried to take a bold look at the crisis, presenting the bailout by the government and the central bank as a sign of strength.

“The Swiss financial sector has been able to solve a serious problem for a major player,” SBA chairman and former UBS CEO Marcel Rohner told reporters on Tuesday. “In this sense, I see a prosperous future for the financial center, because we have hundreds of very well capitalized and successful ones,” he concluded.

However, the data show that in recent years, banks in Switzerland have been shrinking. In 2002, there were 356 of them, and in 2021 – 239. The number of employees in this sector also decreased – from 108,000 in 2011 to 91,000 in 2021.

Extraordinary action by the Swiss authorities

The method of saving the financial system from bankruptcy of Credit Suisse also raises doubts. “There are many open questions: the application of emergency law to shareholders or the treatment of bondholders,” said Stefan Leggen of the University of St. Gallen. “Maybe some people are delusional and really believe they’re doing a great job.”

As part of UBS’s takeover of Credit Suisse, CS bondholders will get nothing while shareholders will get $3.23 billion. Although this is only part of the value of the shares before the takeover, in the event of bankruptcy of CS, the shareholders would also be left with nothing.

Switzerland also invoked emergency regulations to allow the Public Liquidity Bank (PLB) to provide up to CHF 100 billion in bailouts to Credit Suisse. The thing is that the PLB was not yet part of Swiss law. The regulations are also controversial state of emergencywhich allowed CS to be acquired by UBS without shareholder approval.

Legge assessed that the collapse should serve as a wake-up call and help introduce new regulations to improve corporate governance. He pointed out that there are few mechanisms in Switzerland that allow individual managers to be held accountable for mismanagement. For comparison, he pointed out that in the UK they may face criminal consequences.

Credit Suisse’s bailout also did not appeal to trade unions and some politicians, who indicate that taxpayers’ money will cover part of the losses in the amount of 9 billion francs.

Declining importance of banking for the Swiss economy

The Swiss banking sector has been struggling for several years with pressure from other countries to loosen the rules of banking secrecy. In this way, they want to limit tax evasion by their citizens.

According to the International Monetary Fund, the financial sector’s contribution to the Swiss economy fell from 9.9% in 2002 to 8.9% in 2002. in 2022.

Jan-Egbert Sturm, director of the Swiss Institute of Economics KOF at the University of Zurich, predicts that the economic impact of Credit Suisse’s collapse will be around 0.05 percent. GDP annually.

Reuters points out that Switzerland’s long banking tradition and structural advantages mean that the country will remain heavily involved in banking in the future, with investors continuing to choose Switzerland for its stability and the strength of the Swiss franc.

Main photo source: Shutterstock

Source link

More articles

- Advertisement -

Latest article