«The Swiss financial center combines established expertise and tradition with a pioneering spirit and innovative strength. The banks have strong regional roots and excellent international networks. They make a significant contribution to a competitive and stable financial center.»

This is how the federal government and the Swiss Bankers Association like to present the Swiss financial center to the outside world. This is fundamentally true. However, the image is currently tarnished in several areas.

1. Accumulation of Negative Headlines

Signa Holding had to file for insolvency (Image: Shutterstock)

The good reputation of the financial center is based on the political and economic stability of Switzerland. In recent years, however, Swiss banks have caused too many negative headlines: from the collapse of Credit Suisse and the writedown on CS-AT1 bonds ordered by the Financial Market Supervisory Authority (FINMA) to the turbulence at Julius Baer in connection with the Signa loans, the real estate company of René Benko.

Conclusion: The Swiss financial center demonstrates remarkable resilience. Even crises like that of Credit Suisse are quickly resolved and absorbed. For this, Switzerland earns respect. Apart from a few scratches, the financial center has not suffered any significant injuries. However, there is talk in financial circles that it cannot take any more such incidents, and that clients are becoming more skeptical of Swiss banks.

The outcome of the dispute over the billion-dollar writedown on Credit Suisse's mandatory convertible bonds will also be decisive. Meanwhile, hundreds of complaints filed with the Federal Administrative Court in Switzerland are targeting the Swiss Financial Market Supervisory Authority (FINMA). The authority, which ordered the writedown on CS-AT1 bonds in March 2023, is accused of disproportionate action.

In a further step, the approximately 3,000 complainants could accuse Switzerland of expropriation, which would directly target the state. All this could prove very costly for the Confederation. A decision from the Federal Administrative Court is pending.

2. Integration of Credit Suisse: Turning Two into One Two become one

UBS is acquiring Credit Suisse (Image: Shutterstock)

By the end of 2026, UBS aims to integrate its former rival, Credit Suisse. Around 30,000 jobs will be cut. In Switzerland, 85 branches of UBS and the former Credit Suisse will be merged. Additionally, cost savings of $13 billion are expected.

The result will be a new major bank that is internationally one of the leading institutions in Global Wealth Management, while remaining closely connected to the Swiss financial center.

«We focus on our clients – private individuals, entrepreneurs, companies, and institutional clients – and help them achieve their goals. We act with respect for Switzerland and its people,» promises the UBS leadership.

Conclusion: The integration of Credit Suisse is a once-in-a-century project. However, as of spring 2024, UBS is proving to be a reliable partner. In the first quarter of the current year, it achieved a net profit again, and almost 40 percent of the cost savings have been realized.

The biggest challenge will remain to sustainably meet the high expectations of shareholders. The cash cow is Global Wealth Management (GWM). The two largest growth markets are Asia and the USA.

3. Dispute Over Capital Requirements

Sergio Ermotti, Karin Keller-Sutter (Images: Provided)

Just over a year ago, Finance Minister Karin Keller-Sutter lavishly praised UBS for acquiring Credit Suisse (CS). She emphasized that this would strengthen market stability. Since then, the relationship between the Federal Department of Finance and the new major bank has cooled.

The point of contention: capital requirements. The federal government wants to raise these. According to current estimates, this could cost UBS an additional 15 to 25 billion francs, money that the major bank had actually earmarked for its share buyback program and future higher dividend payments.

UBS CEO Sergio Ermotti appears increasingly irritated in the debate: «What we need is for people to really understand what happened with CS before drawing conclusions,» he recently complained at an event in Zurich.

Conclusion: Switzerland would do well to do everything possible to prevent a second case like Credit Suisse. However, it is also crucial not to put too tight a leash on the new major bank. UBS is no longer merely a Swiss bank.

It is facing global competition. It has to assert itself against the American institutions in particular. The  report of the parliamentary enquiry committeeon the downfall of Credit Suisse could contribute to easing the discussion.

The report is examining what factors led to the collapse of the former major bank. If it concludes that it was not due to insufficient capital, this would clearly weaken the federal government's position.

 4. Bank Secrecy to Fall Domestically

Even the last bit of bank secrecy is to be abolished (Image: Shutterstock)

Bank secrecy provided Swiss banks with an advantage for decades. In 2017, it was relaxed under pressure from abroad, especially from the USA.

Since then, foreign tax authorities have been receiving information on Swiss bank accounts. Now, the Social Democratic Party (SP) wants to scrap bank secrecy within Switzerland as well. SP National Councilor Andrea Zryd has submitted a parliamentary initiative to this effect.

Conclusion: The Swiss financial center has a bright future even without bank secrecy. The problem lies elsewhere: The SP emphasizes that their initiative aims to close a tax loophole. This is only half the truth.

Ultimately, it is primarily about generating additional state revenues. The financial situation of the federal government is becoming increasingly tense. However, the complete abolition of bank secrecy will hardly solve the federal government's financial problems. Most of the money flows to the cantons and municipalities.

Moreover, there is already a regulatory mechanism in place: the federal government levies a withholding tax on dividends and interest income. In 2023, this brought in 6.4 billion francs for the federal coffers. Additionally, the federal government and cantons already have the means to obtain information from banks in cases of suspected tax evasion or, more importantly, tax fraud.

5. Competition Gaining Ground

The Dubai financial center is becoming more attractive (Image: Shutterstock)

«What are the advantages of Swiss private banking?» This question was recently discussed behind closed doors in Zurich by a select group of prominent representatives of the financial center. Not everyone could immediately provide an answer.

Private banking has become interchangeable. Not least, financial centers like Dubai or Singapore have gained ground in recent years and are close on Switzerland's heels. They are showing impressive speed and presenting themselves as very adaptable and innovative.

Conclusion: The Swiss financial center remains very innovative. In the handling of digital assets, our country is a global leader. With the settlement of the 200-million-franc World Bank bond on May 15 of this year, SIX Digital Exchange even surpassed the 1-billion-franc mark – a milestone. Switzerland can still set international standards. However, it needs to better «sell» its successes.