Swiss banks faced risk of ‘full-scale’ deposit run – regulator
The takeover of the troubled Credit Suisse by rival banking giant UBS has allowed Switzerland’s economy to avoid major problems, including deposit runs at other banks, national regulator FINMA claimed on Wednesday.
FINMA and the Swiss central bank brokered the historic takeover for 3 billion Swiss francs ($3.3 billion) in a deal announced last month. As part of the transaction, the regulator ordered Credit Suisse to write down to zero some 16 billion Swiss francs ($17.6 billion) of its Additional Tier 1 (AT1) bonds – widely regarded as higher risk investments – with the aim of bolstering the bank’s capital and resolving its liquidity problems.
According to FINMA CEO Urban Angehrn, the bankruptcy plan was “de-prioritized early on due to its high tangible and intangible costs.” The chief executive pointed out that insolvency would have left the functional parts of Credit Suisse in operation as a Swiss-only bank, but one with a “damaged reputation.” A temporary takeover by the Swiss government would reportedly have exposed taxpayers to the risk of losses.
“The parent bank Credit Suisse AG would have gone under – a Swiss bank with total assets of over 350 billion Swiss francs ($387 billion) and ongoing business also running into many billions,” Angehrn stated. “It is not difficult to imagine the disastrous impact the bankruptcy of a bank and wealth manager as large as Credit Suisse AG would have had on Switzerland’s financial center and private banking industry,” he explained. “Many other Swiss banks would probably have faced a run on deposits, as Credit Suisse itself did in the fourth quarter of 2022.”
The FINMA CEO went on to claim that “the damage to the Swiss economy, financial center and Switzerland’s reputation would have been enormous, with unquantifiable effects on tax revenues and jobs.”
He also argued that the merger plan was ultimately favored both to stabilize Credit Suisse and to prevent a domino effect on the global banking sector.
“The current fragile state of the financial markets due to the shift to monetary tightening in 2022, the uncertain economic outlook, the crisis at certain banks in the US and the whole geopolitical backdrop were also relevant to our decision,” Angehrn maintained. “There was a high probability that the resolution of a global systemically important bank would have led to contagion effects and jeopardized financial stability in Switzerland and globally.”
The US banking crisis exacerbated the troubles of Credit Suisse, which had been already battling a string of scandals, legal issues, and customer outflows. In addition, its biggest investor, Saudi National Bank, announced in March that it would not be able to provide financial assistance due to regulatory and statutory limits.
Credit Suisse reported a 2022 net loss of 7.3 billion francs (nearly $8 billion) and warned that it would incur another “substantial” loss in 2023 before returning to profitability in 2024.
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