- UBS on Sunday agreed to buy its embattled domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) in a government-backed cheap deal.
- Swiss authorities and regulators helped regulate the deal, which came amid fears of contagion to the global banking system after two smaller US banks collapsed in recent weeks.
- “Switzerland’s reputation as a financial center has been shaken,” Opimas CEO Octavio Marenzi said in a research note. “The country is now viewed as a financial banana republic.”
Switzerland, a country heavily dependent on finance for its economy, is on track to merge its two largest and most well-known banks into a single financial giant.
Fabrice Coffrini | AFP | Getty Images
The demise of banking giant Credit Suisse sent shockwaves through financial markets and appears to have dealt a blow to Switzerland’s reputation for stability, with one executive suggesting investors will now view the mountainous central European country as “a financial banana republic”.
UBS, Switzerland’s biggest bank, on Sunday agreed to buy its embattled domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as part of a government-backed cheap deal.
Swiss authorities and regulators helped regulate the deal, which came amid fears of contagion to the global banking system after two smaller US banks collapsed in recent weeks.
The bailout deal means Switzerland, a country heavily dependent on finance for its economy, is on track to merge its two largest and most well-known banks into a single financial giant.
“Switzerland’s reputation as a financial center has been shaken,” Opimas CEO Octavio Marenzi said in a research note. “The country is now viewed as a financial banana republic.”
“The Credit Suisse debacle will have serious consequences for other Swiss financial institutions. A nationwide reputation for prudent financial management, sound regulatory oversight and, frankly, somewhat dour and boring investment policies has been wiped away,” Marenzi said.
Shares in UBS rose almost 4% around 10:15 a.m. London time (6:15 a.m. ET) on Tuesday, extending gains after closing higher in the previous session.
Credit Suisse, meanwhile, traded 0.6% lower in morning trade after ending Monday’s trading session down a whopping 55%.
“A feature of all this banking pressure that we’ve seen over the last week or two is that we’ve actually seen a lot of volatility in the stock markets, a lot of volatility in the bond markets and also in the commodity markets, but very little volatility in the forex markets Bob Parker, senior advisor at the International Capital Markets Association, told CNBC’s Squawk Box Europe on Tuesday.
When asked how investors would feel today about Switzerland’s reputation for stability, Parker replied: “When I was in Zurich last week, this topic was indeed a hot topic.”
He said there had been “very modest” weakness in the Swiss franc against the euro in recent days, noting that this is the currency pair on which the Swiss National Bank is focused.
One euro was trading at 0.9961 Swiss francs on Tuesday morning, weakening from 0.9810 compared to March 14th.
“We have come close to parity again with the Swiss franc-euro. To answer your question, I think yes, the Swiss Franc has lost some of its appeal as a safe haven currency to some extent. There’s no doubt about that,” Parker said.
“Will that be recovered? Probably yes, I would argue that this is some sort of short-term effect,” he added.
— CNBC’s Elliot Smith contributed to this report.