The end of Credit Suisse is a Swiss tragedy, yet self-inflicted and damaging to the reputation of Switzerland as a country and a financial center, finance expert Beat Wittmann writes in his guest post for finews.asia.
The root causes of this calamity will have to be carefully analyzed and consequences applied – the political fallout will be massive.
The best possible outcome given the dire circumstances is UBS’ take-over of Credit Suisse before the capital market opening. The only other alternative would have been a nationalization. No possible alternative would have protected the Swiss economy and international financial system stability.
Post-Merger Integration Poses a Huge Challenge
The terms of the Credit Suisse acquisition are attractive for UBS, leading to gains in market share and scale, particularly, in wealth and asset management. However, given the two vastly different corporate cultures, legacies and significant overlaps in businesses post-merger integration will pose a gigantic execution challenge, particularly, against an ongoing hostile global macroeconomic backdrop.
Crucial for the success of the future merged UBS/CS bank will be an experienced and credible supervisory board and competent and proven executive leadership.
Self-Inflicted Failure of Credit Suisse and the Regulator
Beat Wittmann (Image: zvg)
The key reasons why CS ultimately failed include incompetent and wrongly incentivized leadership, an unsustainable business model and a strategy built/burnt by the oversized and second-rate investment banking and, last but not least, multiple omissions and failures by the Swiss regulator.
Clearly, trust and confidence are earned over time. Crucial is truthful communication, delivery of facts and figures on quantifiable objectives rather than personal storytelling and the public relations budget.
A Crisis Should Not Be Wasted
A crisis should never be wasted the saying goes. However, the history of financial crises sadly shows that too much emphasis is placed on fighting the last war and, thus, planting the seeds for the next crisis.
As such, the tenor in today’s comments was utter disbelief about CS’ sudden demise and that it was unforeseen. That is absurd and a cheap excuse for shortcomings. The consistently falling share price as well as valuation metrics and the CS credit rating have been forecasting the story over the past years.
Lessons Learned have to be Applied Ruthlessly
The new Swiss bank behemoth, if poorly managed, will pose an even bigger threat given its size relative to the Swiss economy.
Therefore, it is key to apply lessons learned from the collapse of Credit Suisse – minimize investment banking business, significantly increase capital requirements, reform and massively upgrade resources and instruments at Finma and secure alignment of interest regards management compensation.
Policymakers Can No Longer Hide
Systemically relevant banks are not private enterprises but have economic utility functions and therefore, the government is obliged to actively assume responsibility. In the case of the CS’ demise, the Swiss Government was forced to react at the last minute instead of addressing the escalating crisis in a timely manner throughout.
Last but not least, in view of the Swiss national elections this fall, the Swiss Government and lawmakers ought to actively communicate to the Swiss population that with global banking comes global responsibility.
Beat Wittmann is chairman and partner of Swiss-based financial advisory firm Porta Advisors for over seven years now. His more than 30-year career in Swiss banking includes stints at both UBS and Credit Suisse as well as Clariden Leu and Julius Baer. He operated his own firm from 2009 to 2015, first independently and more recently under the Raiffeisen Group.
