Saving habit gives cushion to Swiss

13th October 2008, Comments 0 comments

The Alpine nation’s tradition of saving may have helped protect the country from the financial crisis.

13 October 2008

GENEVA -- Global financial turmoil has shaken Switzerland's two biggest banks, but fast reaction and the country's traditions as a safe haven for savings may be giving the Alpine redoubt special protection from crisis.

The multibillion-dollar losses incurred by UBS AG and Credit Suisse Group over the past year have pointed up their vulnerability to the same afflictions faced by other major international banks. But the 328 other Swiss banks specialising in the nation's famed wealth management and other cautious approaches to investing appear relatively unfazed.

"If you look around Europe at the moment everybody's got their steel helmets on as the scaffolding's crumbling down, and we've seen no indications that there's a banking crisis in Switzerland," said James Nason, spokesman for the Swiss Bankers Association.

Nason conceded that "everybody is suffering today because of poor market conditions," but he said Swiss banks have a "huge pool of deposits to call on" and need to borrow less from other international banks.

Saving has deep roots in Switzerland.

"The Swiss are generally a risk-averse people. Maybe that goes back to times when they were primarily an agricultural people and crop failure meant not just financial ruin but also starvation," Nason said. "I think risk management is in their genes."

In 2005, the most recent comparable year available, Switzerland's gross national savings was 36.1 percent of GDP, compared with 13.5 percent for the United States.

Not only are the Swiss good savers themselves, but many wealthy people around the world look to Switzerland as a place to stash their assets.

The banks together manage some CHF 5.2 trillion in securities holdings for their clients, both foreign and domestic.

Manuel Ammann, a finance professor at the prestigious University of St Gallen in eastern
Switzerland, said wealth management has traditionally been very strong in Switzerland.

Swiss banks - including the large ones - put emphasis on having a strong capital base to send a signal of security to their customers, he said.

"That makes for a fairly large deposit base in Switzerland and that makes banks more resilient to the developments that we've seen in the last few weeks," Ammann told The Associated Press.

He noted that UBS, which had CHF 45 billion in writedowns and losses over 2007 because of bad investments in the US subprime market, shored up its capital base twice earlier this year by attracting investments from sovereign wealth funds in Singapore and the Middle East and from shareholders.

"Even though they met the standard capital requirements, they did this painful raise of new capital from their shareholders in order to be able to show again this strong capital base," Ammann said.

UBS's timing was good, too, because it would have been more difficult if not impossible to raise the capital had the bank waited until later this year when financial conditions were worse, he added.

Hans Geiger, a retired banking professor at Zurich University, said UBS was a "big headache" for Switzerland.

"They're so big. Their total assets are about five times Swiss GDP, which of course is enormous."

The big banks are much bigger than other Swiss banks. The two banks alone have 67 percent of the balance sheet total of CHF 3.5 trillion for all banks in Switzerland.

Economics Minister Doris Leuthard said Thursday that the government had contingency plans to prevent the collapse of either of the two big banks, who together employ almost half of the 109,000 people who work for banks in Switzerland, a country of 7.5 million.

Despite global problems, the staff numbers were still rising at last count earlier in 2008.
Swiss newspapers have been questioning the government's slowness to increase bank deposit insurance, because the CHF 30,000 per client is low by international standards.

Government officials have said they are looking into it, but place less emphasis on that than on the need to make sure banks have enough money to keep credit going.

"That was a cool reaction and a realistic one," said Geiger.

He said he was shocked when German Chancellor Angela Merkel said the German state guarantees all the country's banks. This seemed to send a signal that all the banks were in trouble, "which I'm almost sure is not the case," he said.

Geiger said he agrees with the Swiss government that the problem is between banks, not customer confidence.

"There are no depositor queues in front of the banks here," he said. "The problem is the relationship between the banks. The interbank market has dried up or broken down completely."

Geiger said by one measure the large banks are well capitalised, but like other international banks they are more reliant on loans than other Swiss banks.

"Otherwise I think the banks are healthy, the economy is healthy. I just don't see any reason for panic."

[AP / Expatica]

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