(March 25): The Swiss government was compelled to intervene to save Credit Suisse Group AG as the troubled bank wouldn’t have survived another day of trading amid a crisis of investor confidence, Finance Minister Karin Keller-Sutter said.
“CS would not have survived Monday,” Keller-Sutter said in an interview with Zurich newspaper NZZ. “Without a solution, payment transactions with CS in Switzerland would have been significantly disrupted, possibly even collapsed.”
The impact of a disorderly bankruptcy may have been as much as double Swiss economic output, the minister said, citing expert estimates. More broadly, “we should have expected a global financial crisis” as “the crash of CS would have sent other banks into the abyss.”
The government-brokered purchase of Credit Suisse by UBS Group AG last weekend has been widely criticised for running roughshod over investors’ rights as well as saddling Swiss taxpayers with a huge burden in the event of another crisis. But Keller-Sutter said the alternatives were worse.
“All other options were more risky for the state,” she told NZZ. A temporary nationalisation of Credit Suisse may have lasted far longer than the government wanted as “experience also shows that it can take years or even decades before the state can withdraw from ownership of a bank.”
An orderly wind down was also ruled out, because not only would the damage have been “considerable,” but “Switzerland would have been the first country to wind down a globally systemically important bank. It was clearly not the moment for experiments.”
Keller-Sutter denied that the rescue amounted to a bailout, saying “there’s no money flowing from the federal government to the bank.” But she conceded the deposit guarantees are comparable to an insurance policy, making them “indirect state support.”
The finance minister also dismissed the idea that the US pressured Switzerland to save Credit Suisse.
“It wasn’t as if the US Secretary of the Treasury, Janet Yellen, said to me on the phone: You have to make sure that UBS buys CS,” Keller-Sutter said.
“However, it was clear to everyone — including ourselves — that a restructuring or liquidation of CS would trigger major international upheaval in the financial markets.”
Asked about the impact of the pandemic and now this crisis on Switzerland’s finances, Keller-Sutter said the priority is to improve the country’s deficit. On that score, “there are no signs of improvement until the end of the decade,” she said.