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Old 10.08.2007, 00:22
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[Stock Market] Safety of money in Swiss banks?

I do not mean to upset anyone by asking about the unfeasible, but how safe are the Swiss banks to store your money in long term?

It seems I am suggesting the impossible, but thinking about where the stock market is going to go in the near future in my opinion, I am wondering about long term securities here. If the dollar should drop dramatically, for example if the subprime trouble continues and/or China decides not to be so lenient with loans to the US anymore, what will the financial consequences for Switzerland be?

For background, the European Central Bank has pumped more than 90 billion Euro (not a misspelling!) into the market today in the form of loans to banks who can not otherwise offer credit. This offer has been taken up by 49 banks already, and when they did something similar after September 11, it was only ~60 billion! http://news.bbc.co.uk/1/hi/business/6938425.stm

The Franc has been very weak, but has immediately gained every time a sharp drop in global markets occurred so far this year. I presume this helps the Swiss banks if all goes wrong?

In other words, I am wondering if in a worse case scenario, there is a major crash in Western markets, how secure are Swiss banks? Do they still have large amounts of cash flow that can guarantee instant access of a large number of customers to their cash if they wanted to? I am not talking about minor crashes of a few % like the ones this year so far, but a major downturn of the US dollar and collapse of all European shares affected by general market fears in the wake of such an event.

Could anyone rate the following banks in order of how secure their cash flow and perceived stability are?

Postfinance
UBS
Credit Suisse

http://www.bbc.co.uk/blogs/thereport..._poison_1.html
http://news.bbc.co.uk/1/hi/business/6938072.stm
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Old 10.08.2007, 08:40
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Re: [Stock Market] Safety of money in Swiss banks?

you might want to read about Wikipedia reference-linkBasel_ii
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Old 10.08.2007, 09:01
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Re: [Stock Market] Safety of money in Swiss banks?

worrying thoughts you are having, Muze7. I should say I'm not an economist and I'm also not the CEO of UBS or Credit Suisse, but as a general remark, if something horrific does happen involving China, subprime, a credit crunch and whatever else goes into the cocktail, Swiss banks' business may be marginally less exposed than others, although every bank in the world will feel it.

Anecdotal evidence would suggest that a worst-case financial market scenario might actually benefit Switzerland because of its historical safe-haven status.

Again generally, Swiss banks' capital adequacy is not bad compared to other European or the American banks, simply because the Swiss regulator prefers them to fly well above the legal minimum. Also, because the big banks have extensive private banking arm, they cannot really afford to skimp on this.

But I would expect the Swiss banking regulator and the SNB to be making reassuring comments about now, something to the effect of Switzerland's financial stability and so on.
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Old 10.08.2007, 09:05
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Re: [Stock Market] Safety of money in Swiss banks?

also do bear in mind that two of the three banks mentioned are global enterprises doing much much more than retail banking. They are both actively seeking net new money and high net-worth customers (quite successfully too).

Basel II covers much of the necessary cash reserves required by the banks. EBK regulates this quite aggressively too.
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Old 10.08.2007, 09:08
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Re: [Stock Market] Safety of money in Swiss banks?

for those not involved in banking, EBK = Eidgenoessische Bankenkommission, which is the Swiss financial and banking regulator
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Old 10.08.2007, 09:12
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Re: [Stock Market] Safety of money in Swiss banks?

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for those not involved in banking, EBK = Eidgenoessische Bankenkommission, which is the Swiss financial and banking regulator
Thanks mate, I had my work hat on there
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Old 10.08.2007, 09:19
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Re: [Stock Market] Safety of money in Swiss banks?

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For background, the European Central Bank has pumped more than 90 billion Euro (not a misspelling!) into the market today in the form of loans to banks who can not otherwise offer credit. This offer has been taken up by 49 banks already, and when they did something similar after September 11, it was only ~60 billion! http://news.bbc.co.uk/1/hi/business/6938425.stm

What you need to bear in mind is that this liquidity was not used to guarantee withdrawal from client cash deposits (in general retail banking is governed by Basel II regulations setting the minimum reserve and liquidity requirements for banks).

Most of the liquidity is needed by banks extending loans to broking operations who in turn extend loans to asset managers who either need to cover margin calls on uncovered positions or satisfy redemption requirements on illiquid mutual funds where the underlying assets can not be sold.

The main issue is that the subprime, extremely risky American mortgage debt has been repackaged and sold onwards to clients as a "risk-free" "increased return" cash product. Which in my humble opinion is rrobbery in broad daylight.
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Old 10.08.2007, 09:39
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Re: [Stock Market] Safety of money in Swiss banks?

To answer your original question. Postfinance is an arm of the Swiss post which is 100% owned by the Swiss federation. As such Switzerland is underwriting Postfinance. UBS has 0% non-prime loans and is therefore not effected directly by the current financial turblulence. Credit Suisse has minimal non-prime loan exposure.

To sum up what this all means. All 3 companies but particularly UBS and CS will profit from any substantial market "correction". Ultimately as long as the market is moving, irrespective of direction the banks make money and always use the excuse of a downturn in the financial industry to trim their workforces...
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Old 10.08.2007, 09:49
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Re: [Stock Market] Safety of money in Swiss banks?

I talked to a private banker not so long ago (although before the worries with the subprime market emerged), and he was optimistic about the EU economy at the least. Apparently, germany is catching on again, and it being the engine of the European economy, it might buoy the rest of the countries up as well. A good economic climate can be observed if people are putting money in their savings account, and this guy told me that an increasing number of germans are coming to swiss banks again to deposit their assets. This is in contrast to the previous years where people were living on their savings and widthdrawing money.

BTW, anyone investing into subprime credit and taking it as a secure venture just got what they were asking for. I can't see how could one take this type of investment as secure. Its a high gain - high risk investment from all angles.
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Old 10.08.2007, 18:13
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Re: [Stock Market] Safety of money in Swiss banks?

Thanks to all for these very useful replies. It seems the Swiss banks are well prepared; it is very comforting to know they did not jump on the American subprime band wagon as so many European banks and investment funds seem to have done.

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BTW, anyone investing into subprime credit and taking it as a secure venture just got what they were asking for. I can't see how could one take this type of investment as secure. Its a high gain - high risk investment from all angles.
True, but the annoying thing is it is dragging the whole stock market down. Anyway, it seems we do not yet have to store money in socks at home .

For anyone who can understand Dutch, this might be an interesting video, the fall of the dollar (a fictional documentary from 2005 based on comments of international financial analysts; it is about one day in the future when within a few hours, the dollar starts dropping, people panic and global stock markets drop so dramatically that by the end of the day, banks in western countries are unable to provide any more cash..http://www.vpro.nl/programma/tegenli...ngen/24877874/
(link at the top right). Guess it got me thinking.
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Old 10.08.2007, 18:34
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Re: [Stock Market] Safety of money in Swiss banks?

Muze, Swiss banks actually did jump on the subprime bandwagon, but have enough unrelated, fairly stable business to keep them going. A subtle difference is also that Credit Suisse and UBS do huge business wrapping these mortgage loans - include subprime ones - up in packages and selling them on to asset managers, pension funds, insurers, etc., meaning they ideally don't hold them very long and make their money from issuing (although issuing is slow right now given the troubles).

Whether the banks' trading desks and inside hedge funds bet on these types of mortgage securities is another story...

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It seems the Swiss banks are well prepared; it is very comforting to know they did not jump on the American subprime band wagon as so many European banks and investment funds seem to have done.
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Old 10.08.2007, 18:46
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Re: [Stock Market] Safety of money in Swiss banks?

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To answer your original question. Postfinance is an arm of the Swiss post which is 100% owned by the Swiss federation. As such Switzerland is underwriting Postfinance. UBS has 0% non-prime loans and is therefore not effected directly by the current financial turblulence. Credit Suisse has minimal non-prime loan exposure.

To sum up what this all means. All 3 companies but particularly UBS and CS will profit from any substantial market "correction". Ultimately as long as the market is moving, irrespective of direction the banks make money and always use the excuse of a downturn in the financial industry to trim their workforces...
I'm pretty sure I saw that CS/First Boston had a very large 'non-prime' exposure.

And don't forget, these dodgy CDOs were ranked AAA investment grade. With >10% returns that meant that banks all over the world were clamouring to take them on when times were good. We've already had trouble in France and Germany and the rumours are that a major German player may yet go to the wall.

And all this is before the UK sub-prime wave hits the market, as it surely will when the economy goes off the boil in the UK


That said, I'd trust Swiss banks with my money much more so than general European banks.

Out of interest, what schemes underwrite personal savings in Switzerland? In the UK your first 33k or so in any given bank is guaranteed by the FSA regulations.
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Old 10.08.2007, 18:55
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Re: [Stock Market] Safety of money in Swiss banks?

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Muze, Swiss banks actually did jump on the subprime bandwagon, but have enough unrelated, fairly stable business to keep them going. A subtle difference is also that Credit Suisse and UBS do huge business wrapping these mortgage loans - include subprime ones - up in packages and selling them on to asset managers, pension funds, insurers, etc., meaning they ideally don't hold them very long and make their money from issuing (although issuing is slow right now given the troubles).

Whether the banks' trading desks and inside hedge funds bet on these types of mortgage securities is another story...
Yeah, I think this sums up the situation very well. Basically, there are (were) a large number of banks in the US who were practically dependent on the income from mortgages and the subprime was a large part of their operations. With the credit market going down, these banks (and their customers) face really tough times.
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Old 10.08.2007, 19:19
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Re: [Stock Market] Safety of money in Swiss banks?

to add my 2 cents worth,

Noone knows the full extent of this 'credit crunch'. Im sure UBS and CS have exposure and they probably dont themselves know how badly it could affect them yet. I think it is almost certain that a large bank will get crushed,, anyone take a guess at which one?

In regards to the swiss franc, it has gained because it has been severely undervalued recently and the carry trade is to thank for that. As the carry trade unwinds, as it will during this 'correction',, then it will appreciate.
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Old 10.08.2007, 19:42
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Re: [Stock Market] Safety of money in Swiss banks?

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Yeah, I think this sums up the situation very well. Basically, there are (were) a large number of banks in the US who were practically dependent on the income from mortgages and the subprime was a large part of their operations. With the credit market going down, these banks (and their customers) face really tough times.
The scary thing is that as far as I can see, most typical UK & Irish mortgages sold recently meet the US definition of 'sub-prime':

Huge multiples of salary.
Dodgy credit histories.
No or very low deposit.
No verification of salary.
Interest only with no repayment vehicle.

People really are borrowing silly amounts of money with no real plan as to how they pay it back once the 'teaser' 2-year fix rate expires. Generally, they're up to their necks in credit card and personal loan debt too.

Madness - from the borrowers and the banks/lenders.
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Old 10.08.2007, 19:59
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Re: [Stock Market] Safety of money in Swiss banks?

^ Certainly that's how my mortgage in the UK was, it became a millstone round my neck that neatly absorbed any and all income that I had, and left me struggling far worse than I should have been for the wage I was on.

I, for one, was relieved to jump off the property ladder, at a time when all around me were doing their utmost to climb on.
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Old 10.08.2007, 20:02
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Re: [Stock Market] Safety of money in Swiss banks?

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The scary thing is that as far as I can see, most typical UK & Irish mortgages sold recently meet the US definition of 'sub-prime':

Huge multiples of salary.
Dodgy credit histories.
No or very low deposit.
No verification of salary.
Interest only with no repayment vehicle.

People really are borrowing silly amounts of money with no real plan as to how they pay it back once the 'teaser' 2-year fix rate expires. Generally, they're up to their necks in credit card and personal loan debt too.

Madness - from the borrowers and the banks/lenders.
How can they give a loan to somebody with a dodgy credit history, and no salary verification? They could simply start handing out money at the subway station on a verbal agreement. I expect returns to be similar.
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Old 10.08.2007, 20:08
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Re: [Stock Market] Safety of money in Swiss banks?

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^ Certainly that's how my mortgage in the UK was, it became a millstone round my neck that neatly absorbed any and all income that I had, and left me struggling far worse than I should have been for the wage I was on.

I, for one, was relieved to jump off the property ladder, at a time when all around me were doing their utmost to climb on.
Aaaah - then you clearly weren't borrowing enough

Just take out a loan for a flash 4x4, load your credit cards to the max by buying huge flatscreens, some deckings and water features for the garden and a top of the line fitted kitchen - maybe taking an exotic foreign holiday or two - and then take out a Mortgage Equity Withdrawal loan against your (now higher valued) house to pay it all off!

Easy-peasy! Just rinse and repeat as necessary. After all, cheap and easy to obtain credit will always be around won't it? And your house always goes up in value, making it an everlasting ATM machine

Just go to somewhere the the forums on moneysavingexpert.co.uk and you'll see plenty of people who did it and are now regretting their stupidity ...
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Old 10.08.2007, 20:14
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Re: [Stock Market] Safety of money in Swiss banks?

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How can they give a loan to somebody with a dodgy credit history, and no salary verification? They could simply start handing out money at the subway station on a verbal agreement. I expect returns to be similar.
Easy! Just slice up the dodgy loans, chuck them together in a financial sausage-machine with some slices of more secure loans and get a ratings agency like S&P to give them AAA investment grade ratings.

Then take them to the markets where banks facing interet rates of <4% in the major markets clamour to buy AAA rated products with a >10% return.


Everything is sliced up so the blame is shared amongst all, making sure that even if some default there's only a tiny amount of a hit. Then award yourself a fat bonus and use the profits to make yet more sub-prime loans.

Everyone's a winner baby! I can't think why nobody ever did this before
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Old 10.08.2007, 20:20
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Re: [Stock Market] Safety of money in Swiss banks?

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Aaaah - then you clearly weren't borrowing enough

Just take out a loan for a flash 4x4, load your credit cards to the max by buying huge flatscreens, some deckings and water features for the garden and a top of the line fitted kitchen - maybe taking an exotic foreign holiday or two - and then take out a Mortgage Equity Withdrawal loan against your (now higher valued) house to pay it all off!

Easy-peasy! Just rinse and repeat as necessary. After all, cheap and easy to obtain credit will always be around won't it? And your house always goes up in value, making it an everlasting ATM machine

Just go to somewhere the the forums on moneysavingexpert.co.uk and you'll see plenty of people who did it and are now regretting their stupidity ...
How right you are ! At the beginning of 1989 the UK property market was booming, building socities forcasting prices would continue to increase for the next two years and experts saying that there was no risk of a collapse.

All sounds a bit familiar ? Just like what happening today ? In September 1989 the property market came to a sudden halt and prices went down 30%.

One thing you can learn from history – nobody learns from history !
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