According to observers, the UBS acquisition of struggling rival Credit Suisse has tarnished Switzerland’s reputation as a worldwide financial center and disturbed the country’s identity, warning that its prosperity may become overly reliant on a single banking behemoth.
A merger of Switzerland’s two international banks would have an unclear future at a difficult time for the Swiss identity, which depends just as much on a self-image of financial finesse as it does on expertise in chocolate, watchmaking, and cheese.
While UBS examines its rival’s records, selecting the information it needs and omitting the rest, the authorities who assisted in arranging the $3.25 billion deal have a lot of work to do.
“The real concern is what will happen because we will soon have a monster called a mastodon,that will eventually become too big to fail, according to Marc Chesney, a finance professor at the University of Zurich. The worry is that as time goes on, it will increase its risk-taking because it understands that it is too huge for the Swiss state to ignore.
Following analysis of the data, he estimated that the combined bank’s holdings in exotic securities, such as options and futures, may be worth 40 times Switzerland’s annual GDP. Over time, UBS will control the Swiss state and not the other way around,” Chesney said.
The neutral, prosperous country with around 8.5 million inhabitants has the highest gross domestic product per capita of any country of its size. Switzerland’s relatively tax-friendly and privacy-friendly environment attracts well-heeled expats and regularly ranks among the most innovative countries. Over generations, it has developed into a global hub for wealth management, private banking and commodity trading.
This climate has also spurred a reputation as a secret haven for billions in ill-gotten or laundered money, with the Tax Justice Network ranking Switzerland second to the US in terms of financial secrecy.
That was demonstrated this week when a two-year US Senate committee investigation found that Credit Suisse violated an agreement with US authorities by failing to report secret offshore accounts used by wealthy Americans to evade taxes .
Such turmoil at Switzerland’s second-largest bank, which also includes hedge fund losses and fines for failing to prevent money laundering by a Bulgarian cocaine ring, left it vulnerable as a US bank collapse this month rocked markets.
Many conservatives are now renewing their call for Switzerland to turn inwards.
