Credit Suisses rushed rescue blasted by economist as taxpayers foot bill

Credit Suisse‘s bailout is a denial of democracy with a “cobbled up” solution to the banking giant’s problems rushed over two days, an economist has claimed. The Swiss government engineered the takeover of the struggling bank by its rival, UBS, leaving investors with billions in losses.

The hastily arranged £2.5billion deal prevented the downfall of Switzerland’s second-largest bank after its stock plunged and customers raced to pull their money out.

It came amid fears about long-running troubles at Credit Suisse and wider upheaval in the global financial system after the collapse of Silicon Valley Bank and Signature Bank in the US.

An order by the Swiss Financial Market Supervisory Authority wiped out about £14billion (16 billion Swiss francs) in higher-risk Credit Suisse bonds as part of the emergency rescue.

Marc Chesney, Professor of Mathematical Finance at the University of Zurich, told news website that “a DIY solution” was imposed over two days when measures could have been taken as early as 15 years ago.

In comments translated from French into English, he said: “This goes against democracy.”

Professor Chesney accused governments of turning a blind eye to problems in the system instead of taking steps to prevent another banking crisis.

He said: “We knew since the 2008 financial crisis that the big banks were undercapitalised, opaque, and that they were dealing with huge volumes of derivatives, which are actually gambling in a casino finance system.”

Business journalist Myret Zaki blamed shadow banking for the fall of Switzerland’s number two bank.

She told the same publication: “After the 2008 crisis, we imposed rules on banks, but we didn’t regulate non-bank finance at all, i.e. transactions that don’t appear on the banks’ balance sheets.”

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Both experts said the UBS takeover of Credit Suisse will bring about a bank which is too big for Switzerland, adding the Swiss government may have to come to its rescue.

Professor Chesney said: “We are dealing with a behemoth whose balance sheet size will be almost twice Switzerland’s GDP, even 40 times bigger if off-balance sheet transactions are taken into account.”

UBS announced earlier this month that the boss of Credit Suisse will join its board after it closes its rescue takeover.

Ulrich Korner, who joined Credit Suisse as Chief Executive Officer last summer, will join the UBS group executive board.

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Bosses at UBS said they anticipate the deal will legally close in the “next few weeks” to form a merged banking group.

Sergio P. Ermotti, who recently returned to UBS as CEO, said on May 9: “This is a pivotal moment for UBS, Credit Suisse and the entire banking industry.

“Together we will solidify and represent the Swiss model for finance around the world, one that is capital-light, less reliant on taking risk and anchored by stability and high-touch service.

“This transaction will allow us to offer attractive returns to our shareholders and give us capacity to further invest and grow.

“The integration of the businesses and legal entities will take time.

“But adding Credit Suisse to UBS’s highly capital-accretive business model, diversified revenue streams, disciplined risk management and balance sheet for all seasons will benefit our clients, employees, investors, the economies we serve and the wider financial system.”

Professor Chesney called on Swiss politicians to take action to help prevent another banking crisis.

He said: “We know what needs to be done: increase the equity of banks; separate corporate banking from retail banking; introduce a micro-tax on transactions and, of course, reduce the salaries of big bank executives.”

The expert said if Credit Suisse’s collapse does not have any consequences, then banks will carry on taking risks.

He explained: “The big banks know that the taxpayer will foot the bill and that the political world is turning a blind eye. So there’s no reason for them to change their behaviour.”

Additional reporting by Maria Ortega.

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