Swiss National Bank Chair Reassures Markets

Swiss National Bank chair orchestratedthe swift takeover of Credit Suisse by competitor UBS but not without ruffling some feathers.

As the aftershocks of Silicon Valley Bank’s demise rippled through the financial services sector last month, international regulators rushed to reassure markets. Thomas Jordan, chair of the Swiss National Bank (SNB), drew particular attention as he moved to orchestrate the swift $3.2 billion takeover of Credit Suisse by competitor UBS.

With deposits suddenly flowing out of Credit Suisse at around a CHF10 billion ($10.9 billion) per day clip, a prompt, government-backed merger between the two largest Swiss banks appeared necessary to prevent a systemic crisis. “An insolvency of Credit Suisse would have had severe consequences for international financial stability,” Jordan stressed.

Unlike many central bankers, Jordan has largely stayed out of the public eye—the custom at the SNB, whose Governing Board that only meets quarterly, holds post-meeting news conferences twice a year, and does not issue meeting minutes. “Sometimes, transparency can be counterproductive,” Jordan said years ago.  Elected board chair in 2012, Jordan has strove to contain the strength of the “significantly overvalued” Swiss franc by keeping negative interest rates on bank deposits. Set at -0,75% in January 2015, the key rate remained at that level until last year, when inflation reached a 29-year high of 3.5%. After four hikes, the SNB’s rates are now at 1.50%, significantly lower than most western economies.

Following the impromptu UBS/CS deal, however, Jordan has taken a turn in the limelight, not without some criticism. While many applauded the merger, some question the SNB’s extraordinary first-hand involvement, the CHF200 billion ($215 billion) lifeline it provided, and the total write-down of higher-risk CS bonds that left investors with $17.3 billion in losses.  The manner in which the deal was carried out—hastily, via emergency measures—has also come in for criticism as by-passing UBS shareholders’ approval. Some observers speculate this could lead to legal challenges.

The new banking giant will boast over $5 trillion in assets under management, but that formidable figure could mask problems. “It is a shotgun wedding that none of the parties involved—UBS, CS, the Swiss authorities—really wanted,” says Simon Adamson, head of Global Financials Research at Creditsights. “It is not a deal that UBS would have contemplated if it had not had its arm twisted, and if the consequences of not rescuing CS had not been so dire. The decision to write down AT1s to zero looks short-sighted and could backfire.”