The UBS-Credit Suisse deal puts Switzerland’s reputation on the line

  • UBS agreed Sunday to buy its domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as part of a government-backed, cut-price deal.
  • Swiss officials and regulators helped streamline the deal, which came amid fears of contagion to the global banking system after the collapse of two smaller U.S. banks in recent weeks.
  • “Switzerland’s position as a financial center has eroded,” Opimas CEO Octavio Marenzi said in a research note. “The country will now be seen as a financial banana republic.”

Switzerland, heavily dependent on finance for its economy, is on track to see two of its largest and most popular banks merge into a single financial institution.

Fabrice Gaffrini | Afp | Good pictures

The demise of banking giant Credit Suisse has sent shockwaves through financial markets and is seen as a blow to Switzerland’s reputation for stability, with one executive suggesting investors now regard the mountainous Central European country as a “financial banana republic”.

Switzerland’s biggest bank UBS agreed on Sunday to buy its domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as part of a cut-price deal backed by the government.

Swiss officials and regulators helped streamline the deal, which came amid fears of contagion to the global banking system after the collapse of two smaller U.S. banks in recent weeks.

The rescue deal means Switzerland, a country heavily dependent on finance for its economy, is on track to see its two largest and most popular banks merge into a single financial institution.

“Switzerland’s position as a financial center has eroded,” Opimas CEO Octavio Marenzi said in a research note. “The country will now be seen as a financial banana republic.”

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“Credit Suisse’s failure will have a serious impact on other Swiss financial institutions. The country’s reputation for prudent financial management, good regulatory oversight and, frankly, being boring and boring with respect to investments,” Marenzi said. .

Shares of UBS rose nearly 4% at 10:15 a.m. London time (6:15 a.m. ET) on Tuesday, extending gains after rising in the previous session.

Credit Suisse, meanwhile, ended Monday’s session down 55% and traded 0.6% lower in morning deals.

“One aspect of this whole banking stress that we’ve seen in the last week or two is that, really, yes, we’ve seen big volatility in equity markets, big volatility in fixed income markets and commodity markets, but very little volatility in foreign exchange markets,” International Capital said. Bob Parker, senior adviser to the Markets Association, told CNBC’s “Squawk Box Europe” on Tuesday.

Asked how investors might now think about Switzerland’s reputation for stability, Parker replied, “When I was in Zurich last week, the topic was really a hot topic.”

He said there had been “very moderate” weakness in the Swiss franc against the euro in recent days, noting that it was the currency pair the Swiss National Bank was focusing on.

One euro traded at 0.9961 Swiss francs on Tuesday morning, weakening from 0.9810 on March 14.

“We’ve gone back to parity in the Swiss franc-euro. So, I think to answer your question, yes, the Swiss franc has lost some of its appeal as a safe haven. There’s no question about that,” Parker said.

“Will it pick up again? Probably yes, I would argue it’s a short-term effect,” he added.

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— CNBC’s Elliott Smith contributed to this report.

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