The resignation at the top of the Swiss regulator comes at the worst possible moment given that supervising the new UBS will be an enormous challenge.
Who wasn't mortified when they heard it? The heads of Swiss regulator Finma had known since last autumn that Credit Suisse wasn't going to make it. The preparations for the actual day were apparently hectic. According to some reports, a Finma crisis team met almost daily, and then day and night, in the time leading up to UBS's forced acquisition of Switzerland's second-largest bank.
When the whole thing became public, that simply put even more pressure on Finma. The combined view of its year-long regulatory regime? Just enough at best. Yet there was more. Its call to force billions in writedowns on Credit Suisse AT1 bonds continues to raise angry waves of indignation by impacted investors worldwide.
Unyielding, Constant Pressure
Urban Angehrn (image below) decided it was time to use his common sense. As finews.com reported Wednesday, the unyielding, constant pressure had started to take a toll on his health. He is passing the baton on to Birgit Rutishauser (last image on page) after slightly more than two years.
The change at the top comes at the worst possible moment even in consideration that Finma chairwoman Marlene Amstad's position was just reconfirmed by the government. The writing on the wall is that Finma's burden is going to become almost impossible to manage in the next few months. There are three key reasons for that:
(Image: Finma)
1. Taxpayers
Research indicates that the regulator has submitted its response to the Swiss courts related to the AT1 case. But even if investors are not successful with their claims, they still have another ace up their sleeve. They can argue that the writedown was a material expropriation.
If the courts confirm that, the then government is liable for the damages, and the taxpayers will have to cough up at the end, which is expected to be about $4 billion in damages.
(Image: Finma)
2. Competition Law
At the end of September, the Swiss Competition Commission is expected to give its recommendations about the Credit Suisse takeover to Finma. The process is really just a ceremonial one as everything was really set in stone on the day of the announcement in March. Protecting creditors and the financial system was weighted more heavily than competitive considerations, which is why Finma approved the merger ahead of schedule on 19 March. If they change that now, the entire project is at risk.
Sergio Ermotti indicated in August that he did not think that taking over Credit Suisse would have an impact on competition in the domestic market. Together both banks only have the third largest network of branches, he maintained, and the 24 cantonal banks together had more market share. Still, it would also be very surprising if merging Switzerland's two largest banks together did not warrant any kind of competitive review.
If there is less competition in the market, Swiss citizens will be the ones who suffer. Finma is currently the only one that can prevent that from happening.
3. Iceland Scenario
Switzerland has a problem with the disappearance of Credit Suisse. There is no bank left that could save the new UBS. In the worst case, it could undergo something like Iceland did during the financial crisis with its banking system. That danger has been recognized by the government group of experts on banking stability. They said that the Finma and Swiss National Bank have to remain at the forefront of any crisis but they were very vague about the tools needed. They demanded higher levels of liquidity assistance but not significantly enhanced levels of equity at Switzerland's last remaining major bank.
That is a tricky conclusion for the regulatory body. It has full responsibility but no tools. But the scale of the matter, and the importance, have reached an impossibly large dimension. At the end of 2022, the Swiss Gross Domestic Product was much less than half of the combined balance sheet of the new UBS.
The decision to fully integrate the domestic business of Credit Suisse into UBS's only makes the situation starker. And it will be again Finma that has to prevent it from becoming a catastrophe for the country.
