Switzerland’s decision to rescue failing investment bank Credit Suisse could be a major burden for the nation’s taxpayers, according to Bloomberg calculations.
The Swiss government has pledged to absorb 9 billion Swiss francs ($9.7 billion) of the bank’s losses and provide a 100 billion-franc ($108 billion) public liquidity backstop from the Swiss National Bank (SNB). This means that each resident out of Switzerland’s 8.7 million population will pay 12,500 francs ($13,500) for the bank’s rescue, Bloomberg noted.
The deal also mentions a separate guarantee of 100 billion francs from the Swiss central bank that isn’t backed by the government. Adding the 50 billion-franc loan from the SNB which the bank secured last week, the total sum of the rescue will top 259 billion francs ($280 billion), which is equivalent to about a third of Switzerland’s entire economic output in 2022.
The amount will make the deal Switzerland’s largest ever corporate rescue, far surpassing the 60 billion-franc bailout of UBS in 2008.
“The government’s going to have to say to voters why they are putting citizens’ money, taxpayer money at risk to bail out a bank that was predominantly servicing the ultra-wealthy, doing some pretty extraordinary things with its investment bank and paying people crazy amounts of money relative to what the man in the street gets paid,” a former global bank CEO told Reuters on condition of anonymity.
The merger deal has already angered the Swiss population, with about 200 people protesting outside Credit Suisse’s headquarters in Zurich on Monday. Some chanted “eat the rich” and threw eggs at the building.
Analysts say that the final cost of the rescue might not necessarily be as high as the deal lays out, while inaction on the part of the government may have cost Switzerland its reputation as a global financial center. According to Manuel Ammann, head of the Swiss Institute of Banking and Finance at the University of St. Gallen, the SNB guarantee would be covered in part by securities and bankruptcy privileges, which means that ultimately there may be no need to dip into state funds. Meanwhile, liability for the government-backed SNB guarantee “would only materialize if there was a bankruptcy of the merged entity,” he noted, arguing that such an outcome is unlikely.
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