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Credit Suisse and UBS are the two most important players in Swiss finance. But the longer Credit Suisse is absorbed its own problems, the more it damages the industry. 

Schadenfreude over Credit Suisse is in full gear. The losses prompted by Greensill Capital and Archegos in the last few months have prompted significant capital inflows to other Swiss private banks, the head of a 200-year-old institute in Zurich told finews.asia. 

«It is not our style to talk about it much», he says with a certain discretion, while confirming that 2021 could be the best year in the history of the bank provided «a market crash doesn't ruin everything.»

Ariane de Rothschild, the widow of Benjamin de Rothschild, who died at the start of 2021, has also talked about Credit Suisse. In a concerted media offensive in the «Financial Times», «Le Temps» and the «Neue Zürcher Zeitung» (all articles behind paywalls), she announced, as Edmond de Rothschild's chairwoman, that she wanted to double assets under management to 350 billion Swiss francs ($390 billion). It is a target she ostensibly wants to achieve on the back of Credit Suisse's misfortunes.

Political Interference

The interviews show Rothschild is specifically targeting Credit Suisse clients without explicitly saying so. That makes some sense in that Credit Suisse clients are extremely angry about the situation. And Credit Suisse is likely to continue limping along for a long while if politicians start to wade in as well, as the media over the long Pentecost weekend seem to be reporting when there were comments about Credit Suisse risk-taking and management compensation. 

None of this is in the client's interests and it is damaging for Switzerland and its financial center, which is reliant on having a flawless image. Swiss finance can only have as much international success as UBS and Credit Suisse do because of the enormous influence they have from their 50 percent domestic market share.

Sobering Development

You can also turn it around. Swiss finance is at best half as valuable with a crippled Credit Suisse. Bankers should not underestimate this. The financial industry continues to benefit from a distinct halo over it. But developments between 2009 and 2019 are sobering, particularly when looking at them more closely, financial industry specialist Rino Borini told finews.ch (German only).

Although assets under management rose 54 percent in that time, commission and services revenue fell by 13 percent. In other words «Many private banks are hardly growing. They are simply profiting from equity markets,» management consultant Vega Ibanez told finews.asia.

Creating Less Value

It is hardly surprising that the real value created by banks is constantly falling. About 12 months ago the banking sector contributed about 12 percent to Swiss Gross Domestic Product (GDP). Now that figure is at 9.7 percent, as figures released a month ago by the government show. The only reason the decline was not higher was because of the insurance sector, whose level of value creation has been rising steadily for a number of years, while that by the banks has been falling.

That also has to do with changing client behavior, as finews.ch (German only) has noted a number of times. Wealthy clients are no longer fixated on one offshore center but want to have their assets placed in a number of centers, banks while having different specialists manage them. Switzerland itself does not mean the same to a fast-growing generation of Asian billionaires that it did to previous generations of wealthy from Europe or the US.

Empty Words

Wealthy clients will think twice about putting their money or assets in Switzerland if scandals and a flood of court cases weigh over a major bank such as Credit Suisse.

Then there is another thing. If Swiss finance wants support from the government as a global center for sustainable banking, then no bank can really have any governance failures such as Credit Suisse has just had. If it does, then ESG and Sustainability become very empty words. The schadenfreude over Credit Suisse's mishaps can be damaging here as well.

A major Swiss bank that is not doing well leads to another problem. The future of Swiss finance depends on whether it can reinvent itself in its ongoing digitalization drive and position itself internationally.