According to a new analysis by Bloomberg, the Swiss government’s rescue of the failing Credit Suisse investment bank could prove to be quite costly to the nation’s taxpayers, who will ultimately shoulder the burden for it.
As part of the rescue, the Swiss government pledged to supply a 100 billion franc ($108 billion) liquidity backstop from the Swiss National Bank (SNB), as well as accept 9 billion swiss francs ($9.7 billion) of the bank’s losses. Bloomberg noted the costs of this rescue being borne by the nation will basically amount to a 12,500 franc ($13,500) charge levied against every one of Switzerland’s 8.7 million citizens.
The rescue plan also includes a separate guarantee of 100 billion francs supplied by the Swiss central bank which is not backed by the government. Combined with the 50 billion franc loan from the Swiss National Bank that was secured last week, the combined cost of the rescue will exceed 259 billion francs ($280 billion). Bloomberg noted that is equivalent to about one third of Switzerland’s entire 2022 economic output.
That cost will far surpass the previous largest corporate rescue the nation had undertaken, the 60 billion franc bailout of UBS in 2008.
On condition of anonymity, a former global bank CEO said in a comment to Reuters, “The government’s going to have to say to voters why they are putting citizens’ money, taxpayer money at risk to bail out a bank that was predominantly servicing the ultra-wealthy, doing some pretty extraordinary things with its investment bank and paying people crazy amounts of money relative to what the man in the street gets paid.”
The merger deal has not been welcomed by the Swiss people, with a protest of about 200 people already showing up Monday on the doorstep of Credit Suisse’s headquarters in Zurich. At one point some chanted “eat the rich,” while throwing eggs at the building.
Some analysts have proposed the final cost of the deal may not be as high as has been laid out on paper, and that had the government not acted, Switzerland might have seen its reputation as a global financial center destroyed.
At the same time, Manuel Ammann, head of the Swiss Institute of Banking and Finance at the University of St. Gallen, noted that it is possible the SNB guarantee could be covered in part by securities and bankruptcy privileges, so that ultimately there would not be a requirement to dip into state funds.
Meanwhile, he noted the need for the government-backed SNB guarantee “would only materialize if there was a bankruptcy of the merged entity,” and such an outcome is unlikely.
