Analysts fear Switzerland’s economy might become too dependent on one banking giant after UBS purchases Credit Suisse.

Swiss identity, established as much on financial expertise as chocolate, watchmaking, and cheese, is threatened by the unclear future of the unification of Switzerland’s two biggest banks.

When UBS reviews its rival’s records, cherry-picks what it wants, and discards the rest, regulators who helped broker the $3.25 billion sale are busy.

“The real concern is what’s going to happen, since we’ll now have a mastodon—a monster—that will be gradually too big to fail,” said University of Zurich finance expert Marc Chesney. “Over time, it will take greater chances knowing that it is too huge for the Swiss state to desert it.”
He estimated that the combined bank’s exotic securities—options and future contracts—could be worth 40 times Switzerland’s economic output.

Chesney predicted that UBS would eventually rule Switzerland.

The neutral, rich country of 8.5 million has the greatest GDP per capita of any size. Moreover, Switzerland scores well in innovation and attracts wealthy ex-pats with its cheap taxes and pro-privacy atmosphere. As a result, it has become a global center for wealth management, private banking, and commodities trading.

The Tax Justice Network ranks Switzerland second in financial secrecy, behind the U.S.

Last week, a two-year Senate committee inquiry determined that Credit Suisse breached a plea bargain with U.S. authorities by neglecting to report hidden offshore accounts used by rich Americans to dodge taxes.

While U.S. bank crises shook markets this month, Switzerland’s second-largest bank was vulnerable due to hedge fund losses and fines for failing to prevent money laundering by a Bulgarian cocaine ring.

Conservatives are calling on Switzerland to pull inward again.
Christoph Blocher, a former government minister and power broker of the right-wing Swiss People’s Party, called the Credit Suisse-UBS agreement “very, very hazardous, not only for Switzerland or the United States, but the entire world.”

“This must stop,” he told RTS. “Swiss banks must be Swiss.”

Sergio Ermotti, the UBS CEO for nine years and will assist in leading the buyout, said Switzerland needs a strong global bank to be a strong financial hub.

“For me, the question nowadays is not ‘too big to fail’—it’s rather ‘too little to survive,'” Ermotti remarked during a news conference this week. We want to win.

The Association of Swiss Private Banks’ chairman, Jean Bordier, a famous Geneva banking family member, estimated that the combined organization would have about the same weight in Switzerland as Dutch powerhouse ING has compared to the Netherlands’ economic output.

“Rather than organizing the dissection of the last big ‘universal bank’ in our country — and let competing finance businesses gain — it’s above all important to carry out considerably greater control measures for the new UBS,” Bordier told the Tribune de Geneve newspaper.

He said he felt like he was witnessing “a horrible soap opera” when the banks’ shotgun marriage was revealed on prime-time TV.

The federal administration was sleeping at the wheel, according to critics.

Ueli Maurer, Blocher’s protégé and finance minister until December, advocated letting institutions like Credit Suisse solve their problems.

Octavio Marenzi, CEO of consulting firm Opimas LLC, said the Credit Suisse bailout tarnished regulators and the image that Swiss banks are “rock solid and safe” and managed by the world’s greatest financial managers.

“That reputation has gone up in smoke, and it’s extremely hard to regain,” Marenzi added. “Unfortunately, you may easily damage a reputation you built up over years and decades and maybe even centuries.”

Switzerland’s image has been unstable outside finance, sparking concern ahead of October’s legislative elections.

Switzerland’s major commercial partner, the EU, conflicts with Brussels, clouding bilateral arrangements. In addition, western nations are frustrated by Switzerland’s constitutional “neutrality” because it prevents them from sending armaments to Ukraine to combat Russia.
China reached a deal this month to reestablish relations between Iran and Saudi Arabia without Swiss officials, who had mediated since 2016.

Scott Miller, the U.S. ambassador to Switzerland and a former UBS executive in Colorado, changed the neutrality argument in Europe.

Miller told the Neue Zuericher Zeitung daily this month that Switzerland was facing its “greatest crisis since the Second World War” and encouraged the Swiss to assist Ukraine in defending itself or not hinder others from doing so.

Before the March 19 bank marriage, Credit Suisse lost deposits, shareholders were selling stock, and creditors demanded repayment.

Since then, smaller Swiss banks have received Credit Suisse deposits. But specifics may take weeks or months; employees face massive job cutbacks.

Fallout continues.

The takeover, “too big to fail” regulations, and Credit Suisse manager sanctions will be discussed in a special Parliament session next month.

“Having such a massive bank isn’t always bad,” said Frankfurt School of Finance & Management finance professor Sascha Steffen, citing efficiency.

Yet a behemoth might make lending difficult for small enterprises. Moreover, investors are uneasy about the takeover’s extraordinary steps to change Swiss legislation and disregarding the bondholder-shareholder loss order.

“Markets don’t appreciate the government’s fake marriage, particularly when there was no engagement of other stakeholders,” Steffen added.

“Investor appeal is obviously damaged,” he added.