Credit Suisse collapse: lingering questions one year on

UBS has ambitions, but will it get the greenlight? KEYSTONE/© KEYSTONE / MICHAEL BUHOLZER

A year has passed since Credit Suisse was spared a catastrophic collapse by its sale to banking rival UBS. The emergency merger of the two large banks is still ongoing, leaving some important questions hanging in the air.

SWI swissinfo.ch examines the crucial issues that will determine whether the operation to save the Swiss banking sector will be judged a success or a failure.

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Can UBS successfully complete the merger?

The merger is a mammoth undertaking and will last until the end of 2026. At a UBS presentation in February, CEO Sergio Ermotti identified 6,000 “deliverables” (separate tasks) that must first be completed.

He added that 2024 is a “pivotal year” in the process. There is little room for error in the coming months as UBS tackles the critical and delicate task of merging the IT infrastructures of both banks before moving client data onto the new system.

By the end of 2023, UBS had already shed 16,000 staff across the world, which was particularly severe in the United States and London investment banking centres.

This year, UBS will start to erase 3,000 Swiss posts as part of its drive to achieve $13 billion (CHF11.5 billion) in cost savings by the end of 2026.

The big unanswered question is whether UBS can pull off this feat.

Lurking in the background is a potential challenge from the Swiss competition commission, which has yet to publicly state its official position on the merger.

Does UBS represent risk or reward?

Credit Suisse needed rescuing with an emergency takeover because its sudden, total collapse would have caused considerable damage to the Swiss financial sector and the global banking system.

UBS is now the sole global bank headquartered in Switzerland, with a balance sheet twice the size of the Alpine country’s economy.

The bank does not talk of potential failure, only of rapid growth once the task is complete – for example by growing the amount of assets it manages for the wealthy from $3.8 trillion to $5 trillion in the coming years.

“UBS’s growth ambitions make me really nervous,” University of Bern professor Aymo Brunetti, who once served as head of economic policy at the State Secretariat for Economic Affairs (Seco), told the Handelszeitung newspaper in March. “I can understand it from a business perspective, but from an economic point of view it is highly problematic. The risk that we all bear is becoming ever greater.”

Credit Suisse demonstrated that even an established and seemingly successful bank can fall flat on its face when the wrong management and strategy meet challenging conditions.

A failure of UBS would be disastrous for thousands of employees plus savers and businesses that use the bank’s services. The government is desperate to avoid a potential state bail-out, putting taxpayer funds at risk.

Which way will the regulatory winds blow?

Politicians will have a big say on how banks are regulated in future. Will the Swiss political sphere allow UBS to charge ahead with its growth plans, or decide to trim the bank down to size?

The debate on how to control large banks has been raging in Switzerland since the financial crisis of 2008.

“Naturally the SNB is aware that there are advantages to size,” the then head of the Swiss National Bank (SNB), Philipp Hildebrand said in 2009. “Nevertheless, in the case of the large international banks, the empirical evidence would seem to suggest that these institutions have long exceeded the size needed to make full use of these advantages. There can be no more taboos.”

Similar arguments are being repeated years later.

When Credit Suisse lurched towards failure in 2023, Switzerland’s ‘Too Big to Fail’ banking regulations were supposed to deal with the problem. But the government decided it was better to orchestrate the UBS takeover than risk an attempt to wind up the failed Credit Suisse in an orderly manner.

Switzerland would not have this option should UBS fail. So, in the coming weeks the government will present to parliament its plans to beef up regulations even further.

There are several new proposals on the table, which range from making banks hold bigger capital reserves to cope with shocks to splitting up UBS into smaller units and increasing the powers of the Swiss financial regulator. But there is little political consensus on the best path to take.

If the political system fails to find a regulatory solution, there is only one sensible outcome, according to Aymo Brunetti: “In that case, Switzerland cannot be home to a globally active major bank, which means that UBS’s headquarters should be relocated abroad.”

Edited by Virginie Mangin/amva