Switzerland, a rustic heavily depending on finance for its economy, is heading in the right direction to see its two biggest and best-known banks merge into only one financial giant.
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The demise of banking giant Credit Suisse sent shockwaves through financial markets and appears to have dealt a blow to Switzerland’s status for stability, with one executive suggesting investors will now take a look at the mountainous central European country as “a financial banana republic.”
UBS, Switzerland’s largest bank, agreed on Sunday to purchase its embattled domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as a part of a government-backed, cut-price deal.
Swiss authorities and regulators helped to manage the agreement, which got here amid fears of contagion to the worldwide banking system after two smaller U.S. banks collapsed in recent weeks.
The rescue deal means Switzerland, a rustic heavily depending on finance for its economy, is heading in the right direction to see its two biggest and best-known banks merge into only one financial giant.
“Switzerland’s standing as a financial centre is shattered,” Octavio Marenzi, CEO of Opimas, said in a research note. “The country will now be viewed as a financial banana republic.”
“The Credit Suisse debacle may have serious ramifications for other Swiss financial institutions. A rustic-wide status with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away,” Marenzi said.
Shares of UBS on Tuesday rose almost 4% by around 10:15 a.m. London time (6:15 a.m. ET), extending gains after closing higher within the previous session.
Credit Suisse, meanwhile, was trading 0.6% lower during morning deals after ending Monday’s session down a whopping 55%.
What concerning the Swiss franc as a refuge?
“One feature of this whole banking pressure that we have seen during the last week or two is that truly yes we have seen major volatility in equity markets, major volatility in fixed income markets, and likewise commodity markets, but little or no volatility in foreign exchange markets,” Bob Parker, senior advisor at International Capital Markets Association, told CNBC’s “Squawk Box Europe” on Tuesday.
Asked about how investors might now take into consideration Switzerland’s status for stability, Parker replied, “After I was in Zurich last week, this subject actually was a hot topic.”
He said there had been “some very modest” weakness within the Swiss franc against the euro in recent days, noting that that is the currency pair the Swiss National Bank focuses on.
One euro was seen trading at 0.9961 Swiss francs on Tuesday morning, weakening from 0.9810 compared to March 14.
“We have moved back near parity on Swiss franc-euro. So, I feel to reply your query, yes, to some extent the Swiss franc as a refuge currency has lost a few of its allure. There is no such thing as a doubt about that,” Parker said.
“Will that be regained? Probably yes, I might argue this may be very much kind of a short-term effect,” he added.
— CNBC’s Elliot Smith contributed to this report.
