A very precarious calm seems to have returned to the financial markets after the rescue of the Swiss bank Credit Suisse by its competitor UBS, thus giving birth to a banking giant… with feet of clay. If the authorities took things very seriously and pushed for this takeover, this episode reveals the shortcomings of supervision of the banking system by the Swiss Central Bank, maintains the Swiss economist and investor Michel Santi who publishes an essay on March 24 next Favre editions SNB, nothing is right. He denounces the unhealthy behavior of a central bank transformed into a “hedge fund”. Interview.
L’Express: The Swiss authorities acted very quickly and in one weekend organized the takeover of Credit Suisse by UBS. Is the worst behind us and is the threat of contagion to other European banks averted?
Michael Santi: Indeed in the short term, the rescue of Credit Suisse by UBS is good news. Because the systemic risk was considerable. However, we have already been going through an extreme period of banking stress for two weeks since the bankruptcy of the Silicon Valley Bank. In the United States, we can clearly see that the rescue of another regional bank, First Republic, is not certain. As usual, in these periods of very great concern, all eyes are on the most fragile and least healthy establishments. As such, Credit Suisse was a fair prey. For years, this bank had been walking off the rails. She had been fined several billions for violating different laws in different countries. She had launched headlong – I would even say lost balance! – in the most speculative operations and had invested in the riskiest funds such as Archegos.
Her losses were great and she had to be rescued. However, the Swiss authorities could and should have done things differently from a technical point of view. That is to say, to preserve the existence of Credit Suisse as an independent company by creating a defeasance structure in which all the bad debts of the bank would have been lodged with the guarantee of the State. By pushing UBS to buy out its rival, the Swiss Confederation is bound hand and foot to this new banking giant by granting it a very unhealthy quasi-monopoly accompanied by a blank check. UBS will be able to act with impunity because it will have largely passed the “too big to fail” stage. Its giant size means that the Swiss authorities will save it no matter what because its bankruptcy would take with it not only the Swiss banking system in its entirety but almost the entire federal state! This is a major moral issue…
Swiss banks have long been seen as unsinkable. Does this affair reveal a major flaw in the supervision of the banking system by the central bank?
Obviously ! Regulators have for years been far too tolerant. Credit Suisse committed all sorts of abuses: let’s be realistic, it was a bank “rotten” by these reprehensible actions and which were also condemned… elsewhere than in Switzerland. The Swiss banking system has been transformed into a gigantic open-air casino with the central bank as the croupier!
You say that the Swiss Central Bank (SNB) has deviated from its objective of ensuring the financial stability of the country…
For years, it has had only one objective: to limit the appreciation of the currency at all costs to preserve the country’s competitiveness. For this, it created many Swiss Francs which it sold on the financial markets by buying securities in dollars. But instead of buying US Treasury bonds in the traditional way, which are still the most liquid assets in the world, she began to get caught up in the game of speculation. It has gradually metamorphosed into a kind of “Hedge fund”, gorging itself with securities on the Nasdaq, the oil sector and shale gas. To have proof of this, I went through all the documents available from the American stock market watchdog because the SNB does not publish the details of these investments.
It wanted to kill two birds with one stone: to weaken the Swiss franc but also to make as much money as possible in order to then be able to redistribute these profits to the federal government and to the cantons as its statutes allow it. The problem is that it has lost a lot of money: in 2022, these losses amounted to 130 billion Swiss francs – roughly the equivalent of 130 billion euros -. This is unprecedented: never has a central bank lost so much money. This loss is equivalent to almost 20% of the GDP of the Swiss Confederation. It is enormous !
But can the Swiss central bank go bankrupt?
By nature, a central bank can never fail. Indirectly, the Swiss citizen will be affected because there will be no redistribution of profits in 2022. But there is more serious and I draw the parallel with the Credit Suisse affair: confidence in engineering and the fabled Swiss ingenuity is damn questioned.
In terms of images, the consequences are catastrophic. However, in banking, trust is the key word. Finally, politically, there is a real concern. In a country of direct democracy like Switzerland, not having transparency on the investments of the central bank is a scandal!