Switzerland holds the title of the most secretive financial center in the world, followed by the United States, according to the Tax Justice Network, a non-governmental organization whose primary goal is to advocate for greater transparency. The Cayman Islands, Hong Kong, Singapore, Luxembourg, Germany, Taiwan, the United Arab Emirates, and Guernsey ranked in the top ten for financial secrecy, according to the NGO's financial secrecy index published in 2018.
This organization stated that Switzerland, the largest global center for offshore wealth, had made several improvements to its banking secrecy system in recent years, following sustained pressures from the United States, the European Union, and others. The banking privileges that Switzerland enjoyed are no longer what they used to be, especially following Credit Suisse's announcement of its intention to borrow approximately $54 billion from the Swiss central bank. A few days prior, Credit Suisse stated that it decided to take "decisive action" proactively to bolster its cash liquidity.
Swiss regulatory bodies indicated their readiness to support the bank "if necessary" amid fears of a widespread crisis due to the collapse of Silicon Valley Bank in the US. Credit Suisse's shares plummeted by a record 24 percent.
In light of this crisis, UBS agreed to purchase its smaller rival, Credit Suisse, for 3 billion Swiss francs in a historic deal, with Swiss regulators playing a key role in the transaction as governments sought to eliminate the contagion threatening the global banking system. "With UBS's acquisition of Credit Suisse, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation," stated the Swiss National Bank, noting that the central bank is working with the Swiss government and the Swiss Financial Market Supervisory Authority to achieve the merging of the two largest banks in the country.
The Swiss government has not remained neutral, especially since what happened could threaten its entire banking system. Documents revealed that both Credit Suisse and UBS could benefit from state and central bank support amounting to about 260 billion francs ($280 billion), equating to one-third of the country's Gross Domestic Product.
Swiss authorities announced a deal that includes significant financial support, offering three tranches of liquidity and loans, alongside a commitment to absorb approximately 9 billion francs ($9.7 billion) in potential losses resulting from the acquisition.
The total support of about 260 billion francs ($280 billion) represents one-third of Switzerland's total economic output, which reached 771 billion francs ($832 billion) last year.
In a memo sent to employees after the announcement of the deal, Credit Suisse reassured staff that their bonuses would be fully paid, relying on a support program from the Swiss central bank, aimed at providing liquidity in emergencies. The second-largest bank in Switzerland recently stated it would draw 50 billion francs ($54 billion) from the program that offers financing backed by collateral such as mortgages and securities, and banks can withdraw more of this financing as long as they have more collateral.
Central bank data indicated that Credit Suisse had likely already benefited from this financing.
The central bank offered the merged banks a loan of about 100 billion francs ($108 billion) as part of an emergency liquidity provision, with this loan protected in the event of default. The third tranche of support allows for the withdrawal of an additional 100 billion francs of financing through liquidity support guaranteed by the Swiss government.
Credit Suisse is one of the banks most affected by global market disruptions due to the collapses of Silicon Valley Bank and Signature Bank in the United States. Swiss Finance Minister Karin Keller-Sutter stated, "The bankruptcy of Credit Suisse would have caused massive collateral damage in the country's financial markets and posed a risk of contagion to UBS and other banks, as well as internationally."
For its part, the National Commercial Bank of Saudi Arabia, the largest investor in Credit Suisse, stated that its strategy would not be affected by the decline in the value of its investments in the Swiss bank, which was acquired by its local competitor, UBS.
The National Commercial Bank of Saudi Arabia, the largest bank in the Kingdom by assets, acquired approximately ten percent of Credit Suisse for 5.5 billion riyals ($1.46 billion) last November and is among the largest shareholders in the troubled Swiss bank.
In a stock market statement, the Saudi bank clarified that "any change in the fair value of its investment in Credit Suisse would not impact its financial expectations and plans for the year 2023." The statement mentioned that its investment in Credit Suisse constitutes less than 0.5 percent of the total assets of the Saudi bank, which exceeded 945 billion riyals by December last year, and is not expected to affect profitability.
The rise in oil prices due to the Russian war on Ukraine fostered an economic boom in the Gulf region last year, as sovereign wealth funds and banks—awash with liquidity—sought lucrative deals amid expectations of a weakening global economy. In January, Qatar Investment Authority, the second-largest shareholder in Credit Suisse, increased its stake in the Swiss bank to 6.8 percent. The Saudi Public Investment Fund (sovereign wealth fund) holds nearly 40 percent in the National Commercial Bank.
Diego Lopez, director of Global SWF, noted that Gulf sovereign wealth funds acted as saviors during the financial crisis of 2008 and could do so again using their surpluses. "The year 2008 saw many losers among sovereign wealth funds, but there were also some winners—in this context, the losses of the National Commercial Bank and Qatar Investment Authority would not deter other Gulf investors from seeking other opportunities."
Abu Dhabi First Bank, the largest bank in the UAE, stated in January that it had considered making an offer to purchase Standard Chartered listed on the London Stock Exchange but halted that discussion. There is a possibility of revisiting those plans.
Justin Alexander, director of Gulf Economics and Gulf Cooperation Council analyst at Global Source Partners, commented, "The crisis in Western banks might create attractive entry points for capital-rich Gulf banks considering acquisitions, similar to what Abu Dhabi First Bank thought about Standard Chartered."
In conclusion, it is in everyone's interest to avoid the collapse of the Swiss bank; otherwise, we might see a frightening domino effect on the European banking system and a new round of financial crisis, which, alongside what we already know, would be extremely serious.
