OPINION OF THE WEEK: Credit Suisse's Demise Puts Focus Back On Liquidity, Strength

Tom Burroughes

24 March 2023

Economists and investment advisors continue to ponder the impact of UBS’s acquisition of aren’t sufficient reason to hold fire. The European Central Bank, Swiss National Bank and the Bank of England also hiked rates.

The shock of seeing 167-year-old Credit Suisse go under, and be taken over by its larger rival, has still not fully sunk in. Thousands of bank employees around the world are likely to lose jobs – and we can expect recruiters to be busy in fielding queries from anxious people wondering how they are going to pay their mortgages and provide for their families. (Several executive search industry folk tell me they are busy.)

It is worth remembering, amidst all the drama about banks, bond deals, share valuations and regulatory failings, that human beings’ livelihoods are on the line. And there is the tragedy – not to put too strong a word on it – of seeing a renowned financial institution go down. This news service has known many capable and hard-working Credit Suisse bankers down the years, and one feels wretched for them.

Another issue that strikes this writer is how Switzerland now has one universal bank left standing – UBS. While there are plenty of other banks in the country, such as Julius Baer, Vontobel, Pictet, Lombard Odier and Mirabaud, for example, the dominance in some ways by one bank must give those of a pro-competition frame of mind a moment’s pause. Maybe at some point down the line a new bank may arise to challenge the status quo. Why not? (There are also, let’s not forget, a long tail of cantonal banks that serve the domestic Swiss market.)

From now on, . But a few groups of bankers, maybe working in partnership, might join existing EAMs or form their own. Watch this space.

Another probable outcome is that, just as in 2008/2009, clients and intermediaries will want to know more about the financial strength of banks before depositing money. We have seen that having a fat Common Equity Tier 1 ratio – the “buffer” capital of a bank – isn’t the only marker of health. The ability to stay liquid when the pressure is on is essential. With Silicon Valley Bank, for example, it appears that some pretty basic asset/liability mismatches over bonds and short-term deposits were a big part of the problem. Not all of these factors are easy to spot at first glance. Advisors to HNW clients will need to find out new ways to check the health of banks. Think “KYB” – Know Your Bank.

The digitalisation of the banking sector and other snazzy developments such as AI can obscure basic realities of banking, but times like these are very clarifying. Whether a bank sits in a neoclassical stone-clad office in Zurich, or is a virtual entity appealing to youthful clients browsing on a tablet computer, certain fundamentals remain. In the weeks and months ahead, let’s hope that people remember to heed Rudyard Kipling’s “Gods of the Copybook Headings” once more.