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"A zombie disappeared, but another sample was created" / How to deal with the banking crisis?

2023-03-22 18:01:17Biznes SHKRUAR NGA BRIGITTE SCHOLTES
"A zombie disappeared, but another sample was created" / How to deal
How to deal with the banking crisis

Some calm returned to the financial markets. However, concern remains, as it is not known whether USB's takeover of the crisis-hit bank, Credit Suisse, has really solved the banking crisis.

The very size of Switzerland's only major bank, the "new USB" bank, gives cause for concern. "One zombie disappeared, but another sample was created," the Neue Zürcher Zeitung newspaper commented on the merger at the beginning of the week. mandatory of the bank Credite Suisse with the perennial competitor. "The risk was gradually eliminated because the weak candidate left the market and is now heavily supported by a bank almost twice the size of the one that came under control," said Martin Lück, Germany's chief strategist at the world's largest asset manager. to the world, Blackrock.

In addition, additional guarantees are provided by this step. But: "Through this step, of course, a monolith has been created, a much bigger bank, which is really a Too big to fail bank, so big that it cannot fail, and a very important bank for the system." Because the new bank will manage to have almost 1.58 billion euros, twice the gross domestic product of Switzerland. The bank is already active all over the world, both in asset management and as an investment bank. This is one reason why the big national banks expressed last week their willingness to expand the possibilities of business banks to borrow short-term dollars. In this way, the risk of lack of liquidity in the global financial system will be avoided.

Big cuts inevitable

With the takeover of the bank, the current leaders of USB are faced with Herculean tasks. Because the administrative council is led by the experienced investment banker, Colm Kelleher, who worked for 30 years in a row at the American investment bank Morgan Stanley, which he led out of the financial crisis from 2007 to 2009, being the chief financial officer of her. The operational direction has been taken from 2020 by the Dutchman Ralph Hamers, who was previously the director of the big bank, ING. He must now establish order.

Up to a fifth of Credit Suisse's 50,000 employees could lose their jobs if their bank fails. "There are big overlaps in the business models," says Martin Lück of Blackrock, and mentions the wealth management and investment banking sectors. "In these sectors there will be big cuts to make the new bank profitable."

Until he took over the leadership of USB in September 2020, Hamers worked for almost 30 years for the Dutch financial concern, ING. After the financial crisis he restructured the bank he had been in charge of since 2013, and turned it into a modern digital bank. Its reputation has fallen due to a money laundering scandal, which the bank closed five years ago by paying a compensation of 775 million euros. However, an investigation against him is still open and seeks to find out why, under the leadership of Hamers, the ING financial group failed to fight money laundering.

The Swiss banking regulator, Finma, faces an even bigger task. Particular critical voices were heard due to the lack of control of the Credit Suisse bank, which had been known for months to be in trouble. Should he have observed the bank earlier and especially should he have acted? This is one of the questions heard in the market.

What is the American National Bank doing?

It is interesting to see which banks benefit now from the merger of banks in Switzerland. Because in fact Credit Suisse and UBS are strong rivals. Many customers of one bank have consciously made a decision for that bank and not for the other bank. While others have had business ties with both institutions, because they wanted to be diversifiers. These customers can now take their bank accounts to other smaller banks or asset managers in Switzerland or other parts of Europe.

In the short term, stockists can't wait to see how the American National Bank, the Fed, will react to the turbulence of the financial market on Wednesday (22.03.2023). Will it continue to stay on the tough course of fighting inflation? This will again be reaching out to take candy from the candy box, writes Commerzbank currency expert Antje Praefcke: "As far as I can remember, the Fed's interest rates have never been so wide against each other, from 0 to 25 to 50 points." This is self-explanatory, because after all the problems of the banking sector had their starting point in the USA./ DW


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