Banking Crisis Has Made Even the Swiss Uneasy
Wednesday, October 15, 2008; Page A07
ZURICH -- Of all the places in the world, this was supposed to be the safest to stash your wealth during times of calamity, war and financial panic.
But here in the heart of Zurich's financial district, anxious Swiss investors have been lining up to watch the stock tickers in front of the headquarters of UBS, a financial behemoth that has written off a stunning $43 billion in loser investments since 2007, more than any other bank in Europe.
"The idea that this could happen in Switzerland is unbelievable," said Klaus Stoeckli, 55, a food-products salesman who has withdrawn about $90,000 in investments from UBS, worried that its storied vaults might not be able to protect his money from the global credit crisis.
UBS executives say the bank is not in danger of failure. It has cut 7,000 jobs worldwide and is still trying to unload billions of dollars' worth of risky securities. But the bank has moved aggressively since December to reinforce its balance sheet with $25 billion in fresh private capital. It announced this month that it expects to report a small profit for the third quarter.
But the scare has forced Switzerland for the first time to contemplate the disaster that would result if one of its champion banks failed. It's been a shocking exercise for a country that has long cultivated a reputation for unsurpassed security -- and secrecy -- in its banking industry.
If UBS were to collapse -- as has already occurred with banks in Britain, Germany, France and Belgium -- it is unclear if the Swiss government could amass enough money to rescue it, analysts said. UBS has more than $1.75 trillion in assets worldwide, a figure about four times as large as Switzerland's gross domestic product.
"Swiss banks have always operated on the basis that they have an implicit guarantee of the state," said Manuel Ammann, director of the Swiss Institute of Banking and Finance in St. Gallen. "But these large banks impose substantial risks on the Swiss economy, simply because of their size."
UBS traces its roots to the mid-19th century. A combination of the former Union Bank of Switzerland and Swiss Bank Corp., it prospered during the bank-merger boom of the past two decades and manages more private wealth assets than any other financial institution in the world.
While UBS is the largest bank in Switzerland, it's not the only giant affected by the credit crisis whose sheer size looms over the Swiss economy. One block away on the Bahnhofstrasse, Zurich's main street for high finance and luxury shopping, is the headquarters of Credit Suisse, with $1.1 trillion in assets. Though Credit Suisse has also suffered in the past year, it has not been hit as hard as UBS, its longtime rival.
So far, the Swiss government has had little to say about the financial turmoil, adhering to the national tradition of silence and discretion when it comes to money matters.
On Oct. 6, the Swiss Federal Council, the executive body that runs the Swiss government, issued a statement saying it was "prepared to take appropriate measures should the need arise" and was "committed to ensuring the stability of the financial system." But it has said almost nothing about the travails of UBS, or commented on whether it has developed any contingency plans.
"One would like to have learned how a UBS would be saved, when it has become too big to be saved by little Switzerland alone," the Neue Zuercher Zeitung, a leading Swiss newspaper, wrote in an editorial. "It was once again crisis management à la Suisse: If it's serious, say nothing."