How did the collapse of a U.S. bank have a ripple effect that may have significantly damaged the reputation of Swiss banking?
Guy Williams, president of Gulf Coast Bank and Trust, explained it this week with WWL’s Newell Normand. Earlier this month, Williams explained the unusual circumstances surrounding the failure of Silicon Valley Bank, as well as two other banks in the U.S.
“People like to chase these things,” he told Normand this week about rumors that began to swirl. “And they started looking around the world and saying, well, who else has a weak balance sheet? And the attention switched to Europe, where a Swiss bank had a very weak balance sheet.”
That bank was Credit Suisse, one of the largest banks in Switzerland. As anxiety ramped up in the financial industry, Saudi investors in the bank said they didn’t plan to invest more into it. Williams said the Saudi investors were motivated more by Swiss laws than by any concerns about the bank, but the news served as a “domino” leading to its collapse, along with other past issues.
“It wasn’t that they didn’t like the bank, although there was a lot to dislike, but that was the domino that caused the Swiss bank to fall and created a real problem,” said Williams. He said Credit Suisse has a variety of issues over the years, including money laundering, manipulation of foreign exchange transactions, destroying documents for Russian oligarchs and more.
“So, with that long background of bad behavior, there are a lot of reasons for people to be nervous about Credit Suisse,” and UBS, another Switzerland-based bank – and Credit Suisse’s competitor – announced it would buy it.
Despite its past behavior, Williams said that “Credit Suisse is one of about a dozen banks that really are globally significant,” that it has offices all over the world and that it was heavily regulated.
With the UBS takeover, Williams said Switzerland is left with just “one globally significant bank.”
On Sunday, The Telegraph reported that “Swiss banking went from a Rolls-Royce to a toxic mess” in the chaos of the Credit Suisse failure.
“You know, that reputation of being a pillar of propriety and sanity in banking was definitely shattered with the bailout of Credit Suisse and the... forcing UBS,” he added. Williams said that this bailout will likely negatively impact the Swiss economy and represents “certainly a shattering of trust in the Swiss banking system.”
Listen to the full conversation here.
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