Switzerland, a country that relies heavily on finance for its economy, is on track to see two of its biggest and best-known banks merge into just one financial giant.
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The demise of banking giant Credit Suisse sent shockwaves through financial markets and appeared to have dented Switzerland’s reputation for stability, with one executive suggesting investors would now see the mountainous central European nation as a “financial banana republic.”
UBS, Switzerland’s biggest bank, agreed on Sunday to buy domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as part of a government-backed price deal.
Swiss authorities and regulators helped orchestrate the agreement, which comes amid fears of contagion to the global banking system after two smaller US banks collapsed in recent weeks.
The bailout deal means Switzerland, a country heavily dependent on finance for its economy, is on track to see two of its biggest and best-known banks merge into just one financial giant.
“Switzerland stands as a broken financial center,” said Octavio Marenzi, CEO of Opimas, in a research note. “The country will now be seen as a financial banana republic.”
“The Credit Suisse debacle will have serious consequences for other Swiss financial institutions. The country’s reputation for prudent financial management, good regulatory oversight, and, to be honest, for being a bit reckless and boring in terms of investment, has been wiped out,” said Marenzi. .
UBS shares on Tuesday rose nearly 4% around 10:15 a.m. London (6:15 a.m. ET), extending gains after closing higher in the previous session.
Credit Suisse, meanwhile, was trading 0.6% lower in morning trading after ending Monday’s session down 55%.
What about the Swiss franc as a safe haven?
“One of the features of all these banking pressures that we’ve seen in the last week or two is actually yes we’ve seen major volatility in equity markets, major volatility in fixed income markets, and also commodity markets, but very little volatility. foreign exchange markets,” Bob Parker, senior adviser at the International Capital Markets Association, told CNBC’s “Squawk Box Europe” Tuesday.
Asked how investors can now think about Switzerland’s reputation for stability, Parker replied, “When I was in Zurich last week, it was a hot topic.”
He said there were “some very humble” weaknesses in it Swiss francs against the euro in recent days, he is listening to this currency pair of the Swiss National Bank focused on.
One euro was seen trading at 0.9961 Swiss francs on Tuesday morning, weakening from 0.9810 compared to March 14.
“We have come back closer to parity in the Swiss franc-euro. So, I think to answer your question, yes, to some extent the Swiss franc as a safe currency has lost its appeal. There is no doubt about it. ,” said Parker.
“What will it bring back? Probably yes, I would argue this is a short-term effect,” he said.
– CNBC’s Elliot Smith contributed to this report.