I’m seeing unsubstantiated rumors on Twitter that credit suisse may be on the verge of bankruptcy. Most likely this is just noise. Nonetheless, I’m curious what effect this would have on:
a) the financial system in Switzerland
b) the job and property markets, particularly in the Zurich area
As an example of my thoughts:
what would happen if suddenly a large number of people in Switzerland lose access to their accounts? There are guarantees in place, but presumably there would be some delay until people would get their money back.
how many people work for CS in Zurich/Switzerland? What would the effect of these people losing their jobs have on the broader job market? Presumably some of these people would have previously been considering buying property, but will no longer do so, thus this week reduce demand.
I don’t think this would have a big effect on CSIF funds, as these assets are in a special separate bucket from the bank’s assets. Also all the securities in the funds are not CS (a small % of the whole assets is indeed invested in CS), but securities from other companies, which are not directly affected by CS going bust.
There may be some administrative issues, but I don’t expect that there will be any huge problems.
I do not know if the swiss government will see CS as “too big to fail” and bail them out like they did for UBS in the last financial crisis. If CS is really on the edge, I am sure there are discussions between them and the government at to moment.
Going into offtopic, sorry, but this is something I wanted to understand long time ago. When a “bail out” happen, of course there are media screaming that taxpayers money are going to big boss’s bonuses, but how does it work in reality? Do I understand correctly that “the government” takes over a substantial chunk of stocks of the “bailed out” enterprise and can control their operation? And later sell these stocks with a profit? I read some comments about Germany bailing out Lufthansa in 2020 and then selling stocks with a huge profit.
And in particular what happened with UBS in 2008 and later?
UBS was not rescued directly by the government’s finances but using the SNB (Swiss National Bank) as a “bad bank”. Thanks to the Fed (Federal Reserve)'s intervention, the global situation was rescued and things went well for everybody including the SNB and UBS.
I’m too lazy to search for it, but there were a time when UBS “bought” SBS but apparently it was a merge in the other direction but had to be shown the other way around or something like that.
I don’t think it will be allowed this time between CS and UBS though. So maybe the non-swiss CS part will be sold to someone else.
From what I’ve read here and there is that CS’s international business was problematic. Retail banking in Switzerland seems to be doing pretty well.
I read somewhere not too long ago (~10 days ago) that CS was thinking of reviving its “First Boston” brand. I wouldn’t be surprised if the CS business was split into two separate entities,
CS Suisse retail and First Boston for the non-retail part. The retail part would be merged with UBS Switzerland, the best solution in my opinion to keep the face; the non-retail part would then be considered as a new entity/new group.
I think we don’t need two big banks in Switzerland. I think that UBS has a better international presence and that, for the image of Switzerland and the Swiss banking place, seeing CS disappear could be “a solution”.
To other financial entities maybe? To retail seems unlikely to me, retail liabilities are pretty senior and if it’s a liquidity issue someone (e.g. SNB) will step in to smooth it out (doesn’t make sense to let a bank fail due to liquidity dislocation).