Page last updated at 21:45 GMT, Tuesday, 29 July 2008 22:45 UK

Bank losses shame disgruntled Swiss

By Mark Broad
Business producer, BBC News, Zurich

Christine Vitins
I think they have ruined our good reputation and I feel ashamed of what has happened at the banks
Christine Vitins

In Zurich's central square trams rumble past the tourist stalls doing a gentle trade in Swiss souvenirs.

But while local chocolate, miniature cuckoo clocks and pen knives are still proving popular in the summer sunshine, another icon of Swiss identity is desperately trying to hold onto its good name.

As the credit crunch has bitten over the past year, the country's two largest banks, UBS and Credit Suisse, have between them been forced to write down almost $50 billion (25bn).

For a country that has built its name on its cautious and dependable nature, the events of the last 12 months have come as a shock to many in Switzerland.

'Greed for profit'

The cafes by the banks of the River Zimmat that flows through the centre of Zurich are bustling with lunchtime punters enjoying the summer sun.

Pain at UBS
UBS branch
The world's largest manager of private wealth
Total write downs so far of $38bn
Chief executive Marcel Ospel stepped down in April
Forced to stop providing offshore banking to US citizens

Among those enjoying an early afternoon coffee are school teacher Christine and her friend Conchi.

Up until a year ago, neither of the two women had had much interest in the banks that populate the centre of their native city.

But after a year that has seen headlines about rogue traders, spiralling salaries and mounting losses, both now feel strongly about the way the bankers have behaved.

"I think they have ruined our good reputation and I feel ashamed of what has happened at the banks," says Christine.

"Bad management was one of the problems but there was also a greed for profit."

Swiss pride

The public reputation of bankers in Switzerland was already poor, with many balking at their often huge salaries and conspicuous consumption.

Debit at Credit Suisse
Credit Suisse branch
Switzerland's second largest bank
Total write downs so far of $8bn
In March admits a rogue trader had cost them 2.8bn
Q2 2008 results 62% worse than last year

But since the massive profits turned into enormous write downs, their reputation has fallen even further in the eyes of the general public.

"I don't have any respect for them and I certainly don't trust them anymore. It's a very sad situation," says Conchi.

"I'm very proud of being Swiss, but I don't want to be associated with what has gone on."

Lure of big profits

UBS began life in its current form in 1912 when a merger of two regional banks create the Union Bank of Switzerland.

It thrived throughout the last century, mixing its asset management business in Switzerland with the development of an investment banking empire with a presence in all major financial centres in the world.

And it was the lure of the high risk and high returns in the investment bank that led UBS to invest in products linked to American mortgages, which have turned out to be almost worthless.

Many in Switzerland now feel that the banks should return to its traditional strength in the more conservative pursuit of asset management and cut back on their investment banking activities.

Reputational damage

While the headquarters of the main banks are all in Zurich, the most important city in world banking is the medieval town of Basel in the West of the country.

Urs Roth, Swiss Bankers Association
We operate in a global market and we should compete according to global rules
Urs Roth, Swiss Bankers Association

Just down the road from the bustling main railway station, surrounded by branches of UBS and Credit Suisse, is the headquarters of the Swiss Bankers Association.

The association's head, former UBS executive Urs Roth, seems more relaxed about the damage that the credit crunch has caused to Swiss banking.

"I never would have imagined that we would have seen the losses over the past year," he says.

"But we do not see much reputational damage at the moment as both banks here are mainly involved in wealth management, which has not been as badly damaged."

Local rules in a global market

But just as Swiss banks are beginning to put their overseas sub-prime woes behind them, a more home grown problem is beginning to emerge in the form of tough new rules from the Swiss Federal Banking Commission (SFBC).

Mindful of the embarrassment of the past year, the SFBC want the banks to hold more capital in their reserves so that when another financial storm comes along they will be in a better position to weather it.

Mr Roth is not enthusiastic about the possibility of such new rules. He believes it might make Swiss banks less competitive.

"Switzerland should not take unilateral action and impose its own rules," he says. "We're active in a global market and we should compete according to global rules."

Too important to fail

With a decision on the new standards expected in October, Mr Roth believes that there will plenty of "tough discussions" ahead.

But the question for the whole of Switzerland is just how long it will take for the country to regain its reputation for financial prudence.

Gerhard Schwartz, the economics editor of the Neue Zurcher Zeitung newspaper, says that action is needed to make sure the whole country gets back to its former position.

"This crisis has damaged the Swiss reputation and the banks will need to do something to recover," he says.

"But I'm convinced that it will recover simply because it is so important to the country's economy and because so many people work in the financial sector."

As the bankers troop out of their offices in the centre of Zurich at the end of the working day, it seems that that it will be a while yet before a spring returns to country's collective step.


SEE ALSO
US lawmakers attack bank secrecy
17 Jul 08 |  Business
UBS launches $15.5bn cash call
22 May 08 |  Business
Credit Suisse returns to profit
24 Jul 08 |  Business
Credit Suisse bank loses billions
30 Jul 08 |  Business

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