GENEVA (AP) – The UBS takeover of embattled rival Credit Suisse has shaken Switzerland’s self-image and dented its reputation as a global financial centre, analysts said, warning that the country’s prosperity could grow too dependent on a single banking behemoth.
The uncertain future of a union of Switzerland’s two global banks comes at a thorny time for Swiss identity, built nearly as much on a self-image of finesse in finance as on know-how with chocolate, watch making and cheese.
Regulators who helped orchestrate the USD3.25 billion deal have a lot on their plates as UBS checks the books of its rival, cherry-picks the parts it wants and dispenses with the rest.
“The real question is what’s going to happen, because we’ll now have a mastodon – a monster – that will be increasingly too big to fail,” said a finance professor at the University of Zurich Marc Chesney. “The danger is that over time, it will take more risks knowing that it is too big for the Swiss state to abandon it.”
After studying the numbers, he said, the total value of exotic securities – like options or future contracts – held by the merged bank could be worth 40 times Switzerland’s economic output.
“Over time, UBS will control the Swiss state, rather than the other way around,” Chesney said.
The neutral, prosperous country of about 8.5 million people enjoys the highest gross domestic product (GDP) per capita of any country its size. Switzerland’s relatively low-tax and pro-privacy environment draws well-heeled expats, and it regularly ranks among the most innovative countries. Over generations, it has become a global hub for wealth management, private banking and commodities trading.
That climate also has bred a reputation as a secret haven of billions in ill-gotten or laundered money, with the Tax Justice Network ranking Switzerland second only to the United States (US) in financial secrecy.
That was on display this week when a US Senate committee’s two-year investigation found that Credit Suisse violated a plea agreement with US authorities by failing to report secret offshore accounts that wealthy Americans used to avoid paying taxes. Such turmoil at the Switzerland’s second-largest bank, which also includes hedge fund losses and fines for failing to prevent money laundering by a Bulgarian cocaine ring, made it vulnerable as US bank collapses stirred market upheaval this month.
Now, many conservatives are reviving their calls for Switzerland to turn inward.
A former government minister and power broker of the right-wing Swiss People’s Party Christoph Blocher blasted the Credit Suisse-UBS deal as “very, very dangerous, not just for Switzerland or the US, but the entire world”.
“This has to stop,” he told French-language public broadcaster RTS. “Swiss banks must remain Swiss and keep their operations in Switzerland.”
If Switzerland wants to be a strong financial centre, it needs a strong globally significant bank, said Sergio Ermotti, who was chief executive officer (CEO) at UBS for nine years and will return to help shepherd the takeover.
“For me, the debate nowadays is not ‘too big to fail’ – it’s rather ‘too small to survive,’” Ermotti said.