The phones are blowing smoke. Several memes have been circulating among Genevan bankers in recent days following the collapse of the Swiss financial system. In one of these memes, a photo shows a line of clowns in their colorful wigs walking, with the following caption: “Credit Suisse managers and control department managers on their way to work.”
Some take it with humor. But others not so much. In the headlines of the Swiss press words such as “shame”, “historical scandal” or “national wound” are read. The hasty purchase of Credit Suisse by UBS has shaken what was until now one of its country’s most important economic assets. Even one of its hallmarks: the financial system.
In the film The Third Man (1949), in a famous monologue, Orson Welles exclaimed that “in Switzerland they had 500 years of love, democracy and peace. And what was the result? The cuckoo clock”. Well, the clocks were kept, but it has been the banks that have helped to catapult Switzerland onto the international scene in recent decades. Now doubts emerge. And Swiss pride is wounded, with more holes than an Emmental cheese.
The Tribune de Genève recognizes that the fall of Credit Suisse is synonymous with the “disappearance of a myth from the Swiss landscape”. For example, the organization sponsored the football team or a legend such as tennis player Roger Federer. The psychological impact is remarkable.
The SVP party describes what has happened as “a catastrophe. It is an entity as old as our own history. It is the epitome of Swiss banking.” Thomas Borer, ex-diplomat and employee of the bank, declared in the Financial Times that “decades of bad management in many banks have not only ruined the sector, but have tarnished the brand of Switzerland”.
To understand the magnitude of what has happened, the economic historian of the University of Zurich, Tobias Straumann, in statements to various media, emphasized how, first of all, the financial meltdown is a “crisis of the elites of Zurich”. You have to think that Credit Suisse was founded by the Swiss businessman Alfred Escher, who, in short, had the great idea to drill the mountains of Switzerland in the middle of the 19th century to open the railway tracks.
This is how banking, financing the industrial fabric and innovation, built modern Switzerland, which went from a mountain community to an industrial nation and, in a short time, to an economic power, without being able to dispose of even a drop of oil or raw materials, becoming a banking paradise.
After the bankruptcy of Swissair at the beginning of this century, or the more recent humiliation of Toblerone, which has moved part of its chocolate production outside Switzerland and has been forced to remove the iconic image of the Matterhorn mountain that appeared in its making, the Swiss now have to accept that their financial system is no longer as solid or immune to turbulence as it once was. Although Credit Suisse was solvent and in compliance with regulations, it could not avoid falling. Is Switzerland not what it used to be?
Straumann relates this to the end of bank secrecy, which de facto after the financial crisis of 2008 has shaken – formally – old opaque habits typical of Swiss bankers. According to this thesis, without the advantages of its secrecy, Switzerland would have ceased to be competitive in the universal neighborhood. “The internationalization strategy of Swiss banking, which was believed to be good, has actually turned out to be a disaster. The ability of the Swiss elite to spawn global economic actors has been overestimated. Switzerland cannot be in the first league of world finance”, Straumann said.
Hans Gerbasch, professor at ETH Zurich and co-director of the Swiss Economic Institute, acknowledges to this newspaper that “Switzerland’s reputation has been shaken by this crisis. It is surprising, in particular, that other rescue measures provided for in the system have not been resorted to and a purchase by a larger bank has been opted for”, he emphasizes.
“But the problem is not so much for clients who want to entrust the management of their wealth to a Swiss entity: they are likely to continue doing so. The bad reputation affects foreign investors rather, because after the cancellation of the value of the convertible bonds of Credit Suisse, someone may now think twice before embarking on a financial operation in Switzerland”, warns
They explain in the financial circles of Geneva that when the possibility of the BlackRock fund entering the game to save the entity was glimpsed, the authorities became active to preserve the Swiss essence of the banking sector and forced the purchase by UBS. More than competition, the reason for the State mattered, because, as they said from the Swiss Bankers Association (SBA), “the stability of the financial center is vital for the Swiss economy as a whole “.
This decision, which may sound protectionist, has created a banking giant with assets that double the GDP of the same country: many eggs in a single basket. The Ethos Foundation, which protects the interests of minority shareholders, speaks bluntly that we are facing “an unprecedented failure in the history of the financial center of Switzerland”. This body is studying legal actions because “there are risks of having created a dominant position in the Swiss banking market”.
“Foreign investors can ask themselves if Switzerland is not a banana republic where the rule of law does not apply”, exclaimed the academic of the University of Bern Peter V. Kunz to Bloomberg. “It is true that a dominant bank has been created and this does not benefit the customer. Now, I now feel more secure, but in the future it must be clear that this cannot happen again”, emphasizes the academic Hans Gerbasch.
However, there are those who prefer to avoid gloomy tones. Because Switzerland maintains an indisputable appeal. According to Boston Consulting Group, the country continues to be a magnet when it comes to attracting money: in 2021 alone it sheltered around 2.5 trillion dollars, ahead of Hong Kong or Singapore. The country recovered its pre-pandemic GDP much earlier than other European economies. In addition, he is fully employed, thanks “to a combination of a high level of education, entrepreneurial spirit, a certain flexibility in the labor market, a business network of adequate size and a high export capacity”, recalls Hans Gerbasch.
Another aspect to highlight is that Switzerland is much more than banks. Official data, for example, show that the balance of Swiss exports is very positive in the non-financial sectors in which it enjoys excellence and in which its leadership seems unassailable. We speak, for example, of the sector of watches, precision instruments or chemical and pharmaceutical products. Companies like Roche, Novartis (and Nestlé), brands that can take over as business symbols of the country.
In fact, a senior UBS official in Zurich, who prefers not to be named, defends to this newspaper that the country not only did the right thing with Credit Suisse, but that the Swiss model remains valid. “I partly understand the skepticism, but Switzerland is also a country that managed to solve an existential problem, because the failure and abandonment of Credit Suisse would have been disturbing for the world but tragic for the country. I don’t know how many others would have had the same decision-making capacity”, reasons this senior executive.
“Switzerland is a wonderfully pragmatic country and one of the few that, although it may sound selfish, also manages not to be as self-destructive as the others,” he comments. “Two examples: referendum to increase holidays: rejected. Referendum to raise VAT and the retirement age to reduce the social deficit by a third: approved. And referendums in Switzerland require broad consensus. What other population would vote like this? I can’t think of any.”
