Ubs-Credit Suisse, now Switzerland turns out to be fragile (and with many mysteries) – Corriere.it

The agreement between UBS and Credit Suisse will become operational, barring unforeseen circumstances, in the next three months. Then Switzerland will have a bank whose assets will be worth twice the country’s gross product, while assets under management will be worth six times more than the entire national economy. It will only remain to understand, then, who will really rule the federal government: the government or the CEO of the biggest bank? Certainly the new entity will debut with 120,000 employees and it will be supervised by an authority with just over 500 employees, as well as the other 240 Swiss banks, including doormen and janitors. And although the new entity born from the merger of two of the largest banks in Europe is destined to lose weight, it will still be too big for the country in which it will have its headquarters and most of the business: too big to fail, but also too in order to be saved as happened to Credit Suisse.

It will be then, once the merger is completed, that the economic and institutional consequences of an unprecedented concentration of financial power will be understood. The new entity will have a market share of two-thirds of the entire significant banking sector in the Confederation. No antitrust authority in a democratic country would accept the formation of such vast economic power in the hands of a single company. Not under normal conditions. But the conditions under which the merger between the two Zurich credit giants was negotiated were anything but normal: without an agreement by last weekend, Credit Suisse would have risked taking the path of Silicon Valley Bank or Lehman Brothers and the repercussions would have been incalculable.

Hence the forcing of these days by the Swiss authorities, of which only some are certainly legal. Legal, although surprising and not yet explained, was the decision to privilege the protection of shareholders over subordinate bondholders; that was an option in the bond contracts. Legally less solid is instead another decision by the FINMA regulators, taken with the support of the government and the managers of the two banks: proceed with the merger without going through a vote of approval in the shareholders’ meetings. After all, the balance of power left no alternatives, because UBS was able to dictate the conditions. The cut on creditors for 16 billion euros, combined with public guarantees for nine and a commitment by the same acquiring bank for another five, suggests that Credit Suisse’s losses could reach thirty billion. Except that no one has ever explained where exactly they are or why. The Swiss regulators themselves have not provided clarifications to colleagues in the euro area.

Swiss finance remains rich in transparent and professional excellence, especially in asset management. But now it enters a new chapter in its century-old history without having solved many of the problems that have brought it here. Already in 2008 UBS and Credit Suisse came to the brink of bankruptcy, after years during which the supervisory authorities had failed to keep up with them. But if the disproportion in the balance of forces was too great then, now it will only grow. Moreover, not even some of the problems that caused Credit Suisse’s credibility have collapsed have not been resolved. Last June, a Swiss court condemned the bank for failing to prevent its accounts from being laundered by a Bulgarian gang of cocaine traffickers. But the dirty money issue remains a burning issue for some parts of the federal banking system. Months ago, the national credit association revealed to «Reuters» that the accounts in Switzerland in the name of Russian citizens are still worth between 150 and two hundred billion euros. The beneficiaries are not known: it is only known that the value of the frozen fortunes does not exceed nine billion, while the rest is available to who knows who. And in November the Zurich court allowed three oligarchs to be repaid under multi-million fines with a strong smell of dirt. Ubs is preparing to reign over a country full of talent and dynamism, as much as shadows and contradictions to dissolve.