ZURICH, April 24 (Reuters Breakingviews) – Swiss government intervention to save Credit Suisse (CSGN.S) from collapse last month may have avoided a financial market storm. But Switzerland’s solution to its latest bank crisis – a $3 billion state-blessed sale to crosstown bank rival UBS (UBSG.S) – nonetheless creates headaches across the Alpine nation’s economic and political landscape.

First in line to be affected are Switzerland’s small and medium-sized companies, which are often export-oriented and tend to serve global firms. Swiss-based corporate giants such as $358 billion Nestlé (NESN.S), $227 billion Novartis (NOVN.S) or $69 billion ABB (ABBN.S) will be able to pick and choose between many global investment banks willing to step in once Credit Suisse leaves the scene. But smaller Alpine firms have less choice.

The enlarged UBS, projected to have assets worth more than twice the country’s GDP, is poised to have a chunky 41% market share in loans offered to companies with 10 to 49 employees, a Breakingviews analysis of Swiss National Bank (SNB) data from January 2023 that excludes mortgages shows. It will also have 39% of lending to firms employing between 50 and 249 staff. That compares to 34% and 36% respectively for the aggregate lending to these segments by the most immediate competitors of the new mega-bank: the 20-plus existing Swiss cantonal banks.

Less competition typically means pricier loans, or poorer service. Domestic Swiss banks may also not be able to offer complex banking products like export finance, syndicated loans or debt issuance. This may force smaller companies to engage with large foreign investment banks. But these may not be willing to pick up too much business with smaller, potentially riskier Alpine players.

Moreover, curbs to lending to a single business counterparty may limit the availability of credit for small businesses, Swiss entrepreneurs, economists and lawmakers in Zurich and Bern told Reuters Breakingviews.

Lack of adequate competition may ultimately dent the ability of Swiss firms to challenge rivals internationally. This could be a problem for Switzerland, which for years has topped the rankings for international competitiveness provided by the World Economic Forum and the IMD Business School.

SWISS “TRINITY” QUESTION

The rescue of Credit Suisse has other consequences. Most Swiss taxpayers and many local economists dislike the way the Swiss “trinity” – the government, the SNB and watchdog FINMA – have handled the crisis, particularly given the around 10,000 banking jobs potentially at risk in Switzerland. The Swiss Bankers Association has called for an independent inquiry, and lawmakers gave a symbolic thumbs-down to the rescue of Credit Suisse on April 12. “The Swiss political world has got the feeling … that the oversight of Credit Suisse had not been applied in a sufficiently effective way,” liberal politician Olivier Feller told Reuters Breakingviews on the sidelines of an emergency parliament session to discuss the state rescue in Bern.

Swiss politics is rarely confrontational. But with federal elections due in October, the banking crisis is likely to stay high on the political agenda. Politicians from the country’s biggest parties have called for more rigorous measures, including stronger bank capital ratios for the largest Swiss banks, an end to excessive bonuses and even a split of investment banking arms from retail banking businesses. Switzerland’s direct democracy system means citizens may come forward with legislative proposals if politicians fail to address the issue. That was the case with the 2013 Minder initiative that gave Swiss shareholders a say on pay, although voters rejected a plan to cap bonuses at 12 times the lowest paid worker.

One key issue is whether local regulators are fit for purpose. In April 2019, FINMA proclaimed its first 10 years of oversight of the Swiss financial market a success, even as the seeds of scandals including Archegos and Greensill that were to rock Credit Suisse had already been planted.

Some critics believe FINMA was asleep at the wheel: it “knew a long time ago that some things were going badly,” says banking professor and former SNB official Urs Birchler. More supportive observers propose to give the watchdog the ability to levy U.S.-style big fines and get more staff for its investigations. A smaller group point the finger at Switzerland’s ultimate sacred cow, the SNB, saying it should have stepped in when strong outflows emerged at Credit Suisse in October by offering unlimited liquidity support: “The elephant in the room is the SNB,” a veteran Swiss banker told Reuters Breakingviews.

Such criticism, unusual in Switzerland even behind closed doors, raises the question of whether FINMA Chair Marlene Amstad or even SNB Chairman of the Governing Board Thomas Jordan – who was already on the central bank’s governing board at the time of the 2008 UBS crisis – should move on. A proper post-mortem into what led to the country’s latest banking mess would project the image, at home and abroad, that Switzerland is serious about preventing a future one. Yet, given the group of harsher domestic critics is relatively small compared with those advocating more incremental reform, a regulatory and management overhaul is far from guaranteed.

Finally, the crisis may put Switzerland on a weaker footing to fight old ghosts returning from the past. A Senate Finance Committee report found last month Credit Suisse had violated a 2014 deferred prosecution agreement with U.S. authorities by continuing to help rich Americans dodge taxes. The issue brings back memories of the 2008-2009 tax dispute with UBS that forced Switzerland to give up its prized bank secrecy. UBS investors didn’t previously have to worry about their main rival’s litigation risks; now they do.

Switzerland’s quick fix to Credit Suisse’s troubles may have saved a bigger short-term mess. But the long-term debris will only get more apparent.

Follow @LJucca on Twitter

CONTEXT NEWS

Investors representing more than 4.5 billion Swiss francs of Credit Suisse bonds said on April 21 they have sued the Swiss regulator after their investments were wiped out during last month’s government-orchestrated rescue.

Switzerland’s parliament on April 12 rejected a Credit Suisse rescue package that included 109 billion Swiss francs in financial guarantees. Although largely symbolic, the move highlights growing opposition in Switzerland to a state-sponsored $3 billion takeover of the wobbly bank by rival UBS ahead of federal elections in October.

Editing by George Hay and Oliver Taslic

Our Standards: The Thomson Reuters Trust Principles.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.