# Analysis-Credit Suisse collapse threatens Switzerland’s wealth management crown
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-03-22
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Credit Suisse Collapse Deals Blow to Swiss Wealth Management
Meta Description: Experts warn that the fall of Credit Suisse could damage Switzerland's reputation as a stable wealth management hub, with possible benefits for rival
URL: https://financedigest.com/analysis-credit-suisse-collapse-threatens-switzerlands-wealth-management-crownhtml

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By John Revill

ZURICH (Reuters) – The fall of Credit Suisse has dealt a serious blow to Switzerland’s credentials as the world’s leading wealth management centre, experts warn, calling into question its reputation for stability, regulation and corporate governance.

Battered by years of scandals and losses, Credit Suisse had been fighting a crisis of confidence for months, before its demise was sealed in just a matter of days last week when Swiss authorities brokered a takeover of the bank by larger rival UBS.

UBS itself needed to be [rescued by the government](https://www.financedigest.com/italys-rightist-government-tightens-rules-for-migrant-rescues.html "Italy’s rightist government tightens rules for migrant rescues") in 2008 after a disastrous foray into U.S. [mortgage securities](https://www.financedigest.com/9-priceless-tips-to-help-you-secure-the-right-contractor-mortgage.html "9 priceless tips to help you secure the right contractor mortgage").

The Credit Suisse collapse and its aftermath “is going to be very damaging,” said Arturo Bris, Professor of [Finance at the International Institute for Management](https://www.financedigest.com/how-parents-can-help-students-manage-their-finances.html "How Parents Can Help Students Manage their Finances") Development (IMD) in Lausanne, adding it could benefit rival financial centres.

Switzerland manages $2.6 trillion in international assets according to a 2021 Deloitte study, making it the world’s largest [financial centre](https://www.financedigest.com/new-york-holds-top-spot-london-second-in-z-yen-financial-centre-survey.html "New York holds top spot, London second in Z/Yen financial centre survey") ahead of Britain and the United States. But it [faces competition](https://www.financedigest.com/how-to-maintain-customer-loyalty-and-trust-in-the-face-of-a-pandemic-and-digital-competition.html "How to maintain customer loyalty and trust in the face of a pandemic and digital competition") from other centres including Luxembourg and in particular Singapore, which has grown rapidly in recent years.

“The bankers in Singapore are going to be uncorking the champagne bottles,” Bris told Reuters.

Switzerland’s credibility as a stable, predictable country had been upended by moves like the decision to wipe out the holdings of [Credit Suisse](https://www.financedigest.com/bank-shares-rise-after-credit-suisse-rescue-eases-crisis.html "Bank shares rise after Credit Suisse rescue eases crisis") bondholders, he said.

Under the takeover deal, holders of [Credit Suisse AT1 bonds](https://www.financedigest.com/mitsubishi-ufj-to-postpone-at1-bond-issuance-in-credit-suisse-fallout.html "Mitsubishi UFJ to postpone AT1 bond issuance in Credit Suisse fallout") will get nothing, while shareholders, who usually rank below bondholders in compensation terms, will receive $3.23 billion.

While [Credit Suisse’s AT1](https://www.financedigest.com/some-credit-suisse-at1-bondholders-seek-legal-advice-law-firms.html "Some Credit Suisse AT1 bondholders seek legal advice -law firms") prospectus made clear that hybrid (AT1) holders would not recover any value, few anticipated the bank’s demise.

The Swiss Bankers Association has attempted to put a brave face on the crisis, presenting the rescue engineered by the government, central [bank and regulator](https://www.financedigest.com/exclusive-u-s-regulator-seeks-sale-of-silicon-valley-bank-signature-bank-portfolios-sources.html "Exclusive-U.S. regulator seeks sale of Silicon Valley Bank, Signature Bank portfolios-sources") as sign of strength.

The Swiss financial sector was able to address a [major issue of a significant player,” SBA Chairman and former UBS CEO](https://www.financedigest.com/deutsche-telekom-reaches-majority-stake-in-t-mobile-u-s-ceo.html "Deutsche Telekom reaches majority stake in T-Mobile U.S. – CEO") Marcel Rohner told reporters on Tuesday.

In that sense I also see a prosperous future for the financial centre because we have hundreds of very well capitalised banks and very successful [wealth management](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant") and asset management banks.

Still, the [number of banks](https://www.financedigest.com/why-challenger-banks-need-to-capture-the-hearts-and-minds-of-todays-consumers-to-become-the-number-one-choice-in-the-retail-banking-sector.html "Why challenger banks need to capture the hearts and minds of today’s consumers to become the number one choice in the retail banking sector") has fallen, down to 239 in 2021 from 356 in 2002. Staff numbers since 2011 have slipped to 91,000 from 108,000.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/one.jpg)

Graphic: Banks in [Switzerland](https://www.financedigest.com/barclays-private-bank-opens-new-office-in-verbier-switzerland-for-2022-23-ski-season.html "Barclays Private Bank opens new office in Verbier, Switzerland for 2022/23 Ski Season") Banks in Switzerland – https://www.reuters.com/graphics/GLOBALBANKS-CREDITSUISSE/gkvlwbblepb/chart.png

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/two.jpg)

Graphic: [Swiss banking](https://www.financedigest.com/swiss-regulator-monitoring-banks-and-insurers-after-svb-collapse.html "Swiss regulator monitoring banks and insurers after SVB collapse") sector staff – https://www.reuters.com/graphics/GLOBALBANKS-CREDITSUISSE/zjvqjnybgpx/chart.png

Others were more skeptical about the future, highlighting a reluctance to confront mistakes at [Credit Suisse](https://www.financedigest.com/ubs-makes-changes-to-buyback-programme-following-credit-suisse-takeover.html "UBS makes changes to buyback programme following Credit Suisse takeover") or take responsibility for the aftermath.

There are a lot of open questions: the use of emergency law overriding the views of [shareholders or the treatment](https://www.financedigest.com/amazon-faces-shareholder-vote-on-treatment-of-warehouse-workers.html "Amazon faces shareholder vote on treatment of warehouse workers") of bond holders,” said Stefan Legge, head of tax and trade policy at the University of St. Gallen’s IFF [Institute for Financial](https://www.financedigest.com/a-cloud-migration-guide-for-financial-institutions.html "A Cloud Migration Guide for Financial Institutions") Studies.

“Maybe some people are a bit delusional – and really believe they are doing a great job.”

Switzerland invoked emergency legislation to allow a public liquidity backstop (PLB) which will provide up to 100 billion Swiss [francs in liquidity to Credit Suisse](https://www.financedigest.com/swiss-franc-grapples-with-safe-haven-identity-crisis-after-credit-suisse.html "Swiss franc grapples with safe-haven identity crisis after Credit Suisse") as the PLB was not yet part of Swiss law.

But perhaps most controversially, the emergency [law allowed the takeover to go ahead without shareholder approval](https://www.financedigest.com/eu-approves-law-to-end-sales-of-new-co2-emitting-cars-by-2035.html "EU approves law to end sales of new CO2-emitting cars by 2035").

Legge said the collapse should serve as a wake-up call, and could [see new laws to improve](https://www.financedigest.com/daimler-truck-sees-higher-returns-as-supply-chains-demand-improve.html "Daimler Truck sees higher returns as supply chains, demand improve") corporate governance introduced.

Switzerland has few mechanisms for [holding top](https://www.financedigest.com/5-top-tips-when-holding-a-crisis-press-conference.html "5 Top Tips When Holding a Crisis Press Conference") bankers individually responsible for mismanagement, unlike centres such as Britain where senior managers can face criminal sanctions.

Unions and politicians have also reacted angrily to the rescue, which could leave the taxpayer having to cover up to 9 [billion francs](https://www.financedigest.com/frances-thales-to-buy-imperva-in-3-6-billion-cybersecurity-deal.html "France’s Thales to buy Imperva in .6 billion cybersecurity deal") in losses.

LONG DECLINE

Switzerland’s outsized banking [sector has been under pressure for years](https://www.financedigest.com/2020-the-paradoxical-year-that-has-reshaped-the-future-of-motor-insurance-and-related-sectors.html "2020: The paradoxical year that has reshaped the future of motor insurance and related sectors") following a decline in banking secrecy as other countries sought to clamp down on tax evasion by citizens.

The financial sector’s contribution to the Swiss economy has also slipped, falling to 8.9% of Swiss GDP in 2022 from 9.9% in 2002 as industries like pharmaceuticals became more important in a [country with the third highest GDP per capita in the world](https://www.financedigest.com/richest-countries-in-the-world.html "Richest countries in the world"), according to IMF data.

![](https://www.globalbankingandfinance.com/wp-content/uploads/2023/03/three.jpg)

Graphic: [Declining weight of the Swiss financial sector](https://www.financedigest.com/decline-in-german-services-sector-eases-raising-hopes-for-milder-recession-pmi.html "Decline in German services sector eases, raising hopes for milder recession -PMI") – https://www.reuters.com/graphics/GLOBALBANKS-CREDITSUISSE/dwvkdkzbmpm/chart.png

BAK Economics, a Swiss research institute, said the [fallout from the debacle would be contained within the banking](https://www.financedigest.com/the-recent-bank-of-england-meeting-the-biggest-rate-hike-recession-warning-and-the-fallout.html "The recent Bank of England meeting, the biggest rate hike, recession warning and the fallout") sector. It estimated up to 12,000 Swiss jobs being lost, although the [impact on the broader economy](https://www.financedigest.com/hurricane-matthew-causes-up-to-15bn-impact-to-us-and-caribbean-economies-in-october-according-to-aon-catastrophe-report.html "Hurricane Matthew causes up to bn impact to US and Caribbean economies in October, according to Aon catastrophe report") would be limited.

Jan-Egbert Sturm director of the KOF Swiss [Economic Institute at ETH Zurich, a university, predicted the economic impact of Credit](https://www.financedigest.com/credit-squeeze-biggest-threat-to-economic-outlook-fidelity-international-says.html "Credit squeeze ‘biggest threat’ to economic outlook, Fidelity International says") Suisse’s demise would amount to a loss of around 0.05% of GDP per year.

Switzerland’s long [banking tradition and structural advantages meant the country would remain heavily involved in banking in future](https://www.financedigest.com/bank-of-the-future.html "Bank of the future"), he said, with investors still choosing it for its stability and the strength of its Swiss franc currency.

Still competition was getting fiercer, and the recent events would eventually see Singapore overtake Switzerland, warned IMD’s Bris.

“I think it’s only a matter of time.”

(Reporting by John Revill, additional reporting by Paul Arnold, Editing by Alexandra Hudson)


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