by Marianne and Werner Wüthrich
The disposal of the 167-year-old traditional bank Credit Suisse (Schweizerische Kreditanstalt) took place in a cloak-and-dagger operation on Sunday, 19 March. A few days earlier, on 8 March, the attentive reader had been struck by the news in various Swiss newspapers: “CS obtains asset management licence in China”. The very next day this was no longer a topic. Instead, as could later be learned, secret negotiations with US and UK participation were taking place on an abolition of Credit Suisse at the earliest possible moment. Although it was not insolvent, CS will not be kept alive and kept afloat with state money as UBS was in 2008, but will be incorporated into the latter bank - with three times as much federal and national bank guarantees as were given at that time – with catastrophic consequences for the employees, the shareholders and, above all, for Switzerland.
From the diary of the Lucerne
private banker Karl Reichmuth
“19 March 2023 will go down in the Swiss history books as Black Sunday. It was the day on which Credit Suisse was carried to its grave by rash and ill-considered actions.” 83-year-old Karl Reichmuth (who calls himself the “Methuselah of Swiss bankers”) continues: “Switzerland is a country whose qualities are based on the fact that the grassroots of the population make the decisions – that, so to speak, the decision-making process runs from the bottom up. Concerning Credit Suisse, this was the other way round. This decision was dictated by strong pressure from above.” According to the Swiss banker, pressure from abroad resulted in “an emergency exercise [...] in which there are practically only losers”. Reichmuth concludes: “I also classify this as a betrayal of our basic Swiss values such as freedom, legal security and democracy.”1
Non-Swiss procedure
“With massive state force, using emergency law, the two corporate managements were brought round to a transaction made to look like a purchase. Opposing forces such as shareholders or competition supervision were blocked by the state [...]”. (Beat Gygi, business journalist, and Hans Kaufmann, former National Councillor and long-time banking expert).2
Marcel Niggli, law professor at the University of Fribourg (CH), has “strong doubts” that the Federal Council is acting in accordance with the Swiss constitution. He says that their hasty decision is an “assassination attempt” on the Swiss constitutional state. Niggli recalls: “We are a slow-going community because we thrash everything out together. That process is essential for Swiss democracy. [...] Anyone who wants a decision quickly must honestly argue for a dictatorship.” Switzerland “is degenerating into a banana republic,” Niggli warns. “Whether things are possible or not possible, depends on the say-so of the powerful.”3
Weltwoche editor Roger Köppel: “The Federal Council has put foreign demands above national interests. There is a lack of will to self-assertion.” It is a misconception to believe you will get any favours by way of obedience: “The opposite is the case: If you feed the crocodile, it will work up an appetite, and in the end you will be eaten yourself.” (Weltwoche Daily, 23 March)
Business lawyer Peter V. Kunz explains: “From now on, investors in Switzerland must expect to be expropriated without any legal basis. This will cause lasting damage to the financial centre [...].” And further: “They [the Federal Council] have probably given in to pressure from abroad. The Federal Councillors have shown themselves to be compliant.“4
The injured parties are well known: the expropriated shareholders, the holders of special CS bonds (a total of 16 billion Swiss francs) who will not get a centime back, we taxpayers who will foot the bill for this dubious deal – and the employees: thousands of jobs will be “rationalised away”. The biggest loser, however, is Switzerland, its rule of law and its standing in the world.
“Financial Times” well informed – in advance
While the Swiss population was presented with a fait accompli on Sunday, 19 March, the “Financial Times” already reported on a merger of UBS and CS on Wednesday, 15 March, when the Swiss stock exchange was still open (!). Beat Gygi and Hans Kaufmann write: “Whether these [reports] came from the British Treasury, with whom Federal Councillor Keller–Sutter was obviously in intensive telephone contact, can only be conjectured.” And they add: “If, as she implied, the finance minister was already in almost daily contact with her colleagues Janet Yellen, the American finance minister, and Jeromy Hunt, the British finance minister, then one has to ask why she did not then address the inadequate supervision of the fraud firms Greensill and Archegos, domiciled in the USA and the UK, because the losses from these involvements were probably the last straw that broke the camel‘s back at Credit Suisse.”
How could it come to this concerning the big Swiss banks?
This important question requires a more detailed analysis. Here is a brief summary by Tobias Straumann, economic historian at the University of Zurich: The negative development “began with the internationalisation of the bank in the 1980s. It focused on business in the USA and became increasingly Anglo-Saxon. This led to identity problems. The bank was simply not up to the American investment banking culture with its focus on risks and high profits. Of course, the Swiss [top managers] were happy to accept the high bonuses. But the combination of Anglo-Saxon investment banking and Swiss asset management did not work in the long run. It was a culture clash in which the Swiss got the short end of the stick. [...] Perhaps the big losses might have been avoided if people had been a little more modest, a little more realistic.”5
Banker Karl Reichmuth sees the downfall of Credit Suisse as “a late consequence of the banking crisis of 2008. Since then, more and more cheap money has been pumped into the system, prompting speculation and risky ‘bets’. There was more and more over-indebtedness. That the Silicon Valley Bank then went bankrupt fuelled panic in the markets and accelerated the destructive process.”
In our opinion, the 2008 American financial crisis, which resulted in the “rescue” of UBS with our tax money, should have been a stop signal for the speculative economy of the big Swiss banks. But it was not. While UBS at least reduced investment banking, Credit Suisse continued to expand it.
Professor Marcel Niggli answers to the question, what we as Swiss citizens can do to put a stop to this disturbing development: “We have to stop being ashamed of being a small, slow-acting country. Because this slowness produces stability, and stability is something not easily found in this world. We are a small, boring, slow-moving country. That is the most beautiful thing you can say. From Oscar Wilde comes the phrase: ‘Be yourself, everyone else is taken.’”
Swiss banks to recommit to serious banking business
With the incorporation of one globalised banking colossus into the other, another opportunity is now being missed. Many experts and citizens demand: Let us return to the core business of Swiss banks!: payment transactions, savings, mortgages, asset management. This also includes serious investment banking, for example support in setting up a company, without betting transactions and the like. Swiss banks have done well with this, says Tobias Straumann: “Historically, asset management has always been a safe business area for Swiss banks, guaranteeing large financial reserves.” Even though the breaking of bank-client confidentiality by the US-UK-EU reduced the assets managed in Switzerland, as Straumann notes, it should be marked that the worldwide good reputation of Swiss banks as a safe haven has nevertheless remained. This trust is based not only on bank-client confidentiality, but above all on Switzerland’s serious business conduct, stable political system, secure franc, its independence and neutrality.
The National Council and the Council of States will deal with the issues at hand in their special session after Easter. Many Swiss citizens would welcome the CS Swiss business to be spun off as an independent company with the old name Schweizerische Kreditanstalt. Despite everything, experts did assess CS Switzerland as an intact Swiss bank, with a similarly large equity capital as UBS. “I am convinced that Credit Suisse would have had enough substance to recover on its own – if it had been given the time,” wrote banker Karl Reichmuth. Who could have had any objections?
The end for CS and its China business
On 8 March 2023, the Swiss periodical Finance and Economy reported that Credit Suisse had received various Chinese licences for its asset management business in China and would be able to start “in the first half of 2023” (!).6CS was the first Western bank to get the green light for China. This is because it had conducted a quiet, successful policy in Asia, practically without scandals, in contrast to its business on Wall Street and in London. The classic Swiss banking business has always had a good reputation in Asia.
The newly acquired licences were described by Chinese partners as a “milestone for the big bank’s China plans”. The “Neue Zürcher Zeitung” of 8 March judged: “In fact, full market access in China would be a significant gain for a big bank like CS.” This news comes at the right time for the ailing CS, said the “Neue Zürcher Zeitung”, and could “actually give it a strong boost and a positive outlook for the future”.
Since 9 March, there was not a word to be read about this possible positive turnaround. Quite the opposite: the wiping out of Credit Suisse at a completely non-Swiss pace has now also finished off its China business – entirely in line with the US-UK financial, political and economic clique. Admittedly, most of us Swiss are also not very enthusiastic about the grip of our former Swiss big banks on whatever country. But geopolitical interests were at play here, as the NZZ editorial team warned on 8 March: “If Switzerland should one day be pushed by its Western partners to take a tougher line in this conflict [USA-China], the ground could of course quickly be taken from under the Swiss banks’ China business.”7 Quickly indeed!
“What was actually behind the outflow of funds at CS and how do we know that a UBS could not also be exposed to these forces [...]?” asked Beat Gygi and Hans Kaufmann in their article of 23 March. “A sudden collapse of confidence took place in the autumn of 2022,” said the news anchor on 28 March on Radio SRF. As is well known, it is not rocket science for media editors to create such a negative mood and keep it simmering. According to Finanz und Wirtschaft, CS had been awarded a contract in China in September 2022 to continue a previous joint venture with a Chinese bank as an independent company. And on 8 March, several licences for asset management in China followed – a move away from the sinister speculative business in New York and London and towards the traditional serious asset management in the “enemy country” China. We wonder if the foreseeable success for the Swiss bank was one of the reasons for the death blow administered to it. •
1 Reichmuth, Karl. “Tagebuch” (journal). In: Weltwoche of 23 March 2023
2 Gygi, Beat and Kaufmann, Hans. “Der Untergang” (The demise“. In: Weltwoche of 23 March 2023
3 Köppel, Roger. “Die Schweiz verkommt zu einer Bananenrepublik” (Switzerland is degenerating into a banana republic). Interview with Marcel Niggli. In: Weltwoche of 23 March 2023
4 Burkhardt, Peter. “Der Bundesrat enteignet die Aktionäre ohne Rechtsgrundlage” (The Federal Council is expropriating shareholders without a legal basis). Interview with Peter V. Kunz. In: Tages–Anzeiger of 20 March 2023
5 Scherrer, Giorgio and Biswas, Chanchal. “Herr Straumann, haben die Banken aus der letzten Krise nichts gelernt?” (Mr Straumann, have the banks learned nothing from the last crisis?). Interview with Tobias Straumann. In: Neue Zürcher Zeitung of 17 March 2023.
6 “Grossbank im Umbruch. CS erhält Vermögensverwaltungslizenz in China” (Big bank in upheaval. CS receives asset management licence in China). In: Finanz und Wirtschaft of 8 March 2023 (AWP*). *Swiss news agency for economic and financial news
7 Müller, André. “Gute Nachrichten für die Credit Suisse: China öffnet sich weiter für die Grossbank” (Good news for Credit Suisse: China opens up further for the big bank). In: Neue Zürcher Zeitung of 8 March 2023
mw./ww. According to a report by the US media group Bloomberg on 24 March 2023, the US Department of Justice is currently hunting down banks and their employees who may have “helped Russian oligarchs evade sanctions”. These include CS and UBS. The department is looking into “which bank employees dealt with sanctioned clients and how those clients were vetted in recent years”. The employees can be personally punished if they “violated [US] laws” and the banks could be extorted billions, as Bloomberg threatens. All according to the “US rule of law”, i.e. in defiance of the national law of Switzerland or other states. Bloomberg notes that on 19 March the Federal Council issued a guarantee of up to 9 billion Swiss francs for losses incurred by UBS from the takeover of CS. So in the end, we Swiss taxpayers will foot the bill.
The outrageous coercive measures from the USA are one thing, the intolerable grovelling of the Swiss authorities another. On 30 March, the Zurich District Court, in anticipatory obedience, sentenced four employees of Gazprombank Switzerland to conditional fines for having “conducted a business relationship with the Russian cellist and conductor Sergey Roldugin from 2014 to 2016”, who is “considered a confidant of Russian President Vladimir Putin”. According to the district court, the bank employees “should have realised that the latter could not possibly have been the actual beneficial owner of the assets worth millions”. No wonder, fewer and fewer Russians and Chinese want to entrust their money to Swiss banks. The same applies to the Saudis, among others, whose national bank has lost 80 percent of the value of its CS shares (1.4 billion Swiss francs). Wall Street and the City of London are pleased.
Sources: “Credit Suisse, UBS among banks in US Departement of Justice Russia-sanctions probe”.
Bloomberg, 24 March 2023;
“Zurich district court sentences Gazprombank employees”.
swissinfo of 30 March 2023 (Keystone-SDA)
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