With the end of Crédit Suisse, created in 1856, the Swiss Confederation lost one of its emblematic brands. The shock is similar to the failure of the national airline Swissair in 2001.
From one rescue to another
By orchestrating the takeover of Credit Suisse by its major national competitor USB, the Swiss authorities have saved the essentials. However, the sudden disappearance of one of its flagships undermines the image of Swiss banks, which are considered prudent and reliable.
Ironically, the Swiss authorities were forced to rescue UBS in 2008. But it was just one of many rescues from around the globe during the global banking crisis.
Today, Switzerland is the only country to rescue a national champion. Credit Suisse’s setbacks, however, are not entirely a surprise. For years, bad decisions and repeated scandals have weakened the bank, which has ended up completely losing market confidence. Credit Suisse, therefore, appears as an isolated case that does not call into question the overall strength of the Swiss financial sector.
It is essential to relativise
In the collective imagination, banks are inseparable from Switzerland. Yet this is less and less the case.
Banking activities now represent only 5.6% of GDP compared to 8% in 2007. Moreover, large banks, such as UBS and Credit Suisse, produce only 1.2% of the country’s wealth. This is relatively low compared to other sectors where Switzerland cultivates excellence, such as the pharmaceutical industry (4.8% of GDP) and watch manufacturing (3.2%).
At the end of 2022, banks provided 108,000 full-time equivalent jobs for a total of 4.2 million for the Swiss economy. Undoubtedly, the 16,000 Credit Suisse employees working in Switzerland fear the incorporation of their company into UBS. As a result, there will be significant job losses. But it will be minimal compared to the overall labour market. Banking workers are also skilled. With the current labour shortage, they will quickly find another job.
A strong economy
The disappearance of Credit Suisse is an "earthquake" for the financial sector. But it will have little impact on the Swiss economy. In 2008, despite the setbacks of UBS, Switzerland weathered the financial crisis better than the rest of the world. This is because of the country’s strengths in overcoming headwinds.
The first is the country’s financial strength. With public debt just over 40% of GDP, compared to nearly 100% in the Eurozone and 130% in the United States, governments can mobilise significant financial resources to intervene if necessary.
Another major asset for Switzerland is the Swiss franc. The Swiss currency is powerful, probably the strongest in the world. It thus remained stable during the banking crisis. However, the franc’s strength can be problematic, especially for exporting companies. This is why the Swiss National Bank usually tries to prevent an excessive appreciation of its currency. During storm periods, however, a solid dike protects against the elements.
The strength of the Swiss franc has thus considerably reduced inflationary pressures by limiting the price of imports. As a result, while keeping the rent of money at a reduced level (1.5%), the monetary authorities managed to contain inflation (2.9% in March).
Finally, the Swiss economy is very flexible, especially in the labour market, where the worker is relatively unprotected. This allows companies to adapt to changes in the economy quickly.
An interesting exchange market
Like its share of the economy, the banking sector is far from the dominant sector on the Swiss stock exchange. The financial industry, which includes banks and insurance companies in about equal parts, accounts for 17% of the Swiss stock market. This is half the weight of the first sector, health, and far behind the second, the consumer goods sector (23%).
UBS, the behemoth of the banking sector, is only the 5th largest market capitalisation in Switzerland and does not even weigh a quarter of the weight of the 1st, Nestlé. Roche and Novartis complete the podium. These three companies are solid, with good visibility on growth prospects.
The Swiss stock market is relatively defensive, with very low volatility and a significant return are expected. It is engaging regardless of your risk profile.
