In an exclusive interview with Finews.ch, veteran banking analyst Rainer Skierka shares his insights on the potential risks facing the Swiss financial sector as commercial real estate issues in the United States threaten to spread.
The Risks of Contagion in the Swiss Financial Sector
Rainer Skierka, an experienced financial analyst, has seen his fair share of market crises. Reflecting on the current situation in the US commercial real estate (CRE) market, Skierka provides a detailed analysis of contagion risks for the Swiss banking industry.
In 2023, US regional banks, like Silicon Valley Bank, experienced a significant crisis, which in turn led to turbulence in the global financial markets and played a part in the downfall of Credit Suisse in Switzerland. Now, similar issues in the US CRE market, particularly the struggles of institutions such as New York Community Bank, have raised concerns about potential contagion risks for banks in Switzerland.
Are Contagion Risks Lower Than Before?
Skierka suggests that while banks often downplay contagion risks, there are systemic risks that could ripple through the financial sector, as seen in previous crises. However, compared to the 2008 global financial crisis, the current risks seem more contained. He highlights that the problems affecting the US real estate market are highly specific and localized, primarily concentrated in New York’s commercial real estate sector, which could exacerbate risks if left unchecked.
Swiss Banks’ Exposure to US Real Estate Turmoil
One of the key areas of concern for Swiss financial institutions is their exposure to the US commercial real estate market. UBS, for example, reportedly has billions of francs in loans tied to US CRE properties. While these loans are typically backed by collateral, the unfolding crisis raises questions about the potential impact on Swiss banks’ stability if the market deteriorates further.
Skierka also points out the possibility of consolidation, such as the acquisition of First Republic Bank by JP Morgan last year, which could play a role in mitigating broader risks if the crisis escalates.
Parallels to the 2008 Financial Crisis?
Skierka acknowledges that while there are some similarities between the current situation and the 2008 subprime mortgage crisis, there are also significant differences. The current interest rate environment, for example, is much healthier, even though rates have risen. However, geopolitical risks could still play a subtle role in amplifying the financial strain.
Skierka also warns that, while the economy appears stable, the underlying risks could lead to unexpected events — a “black swan” scenario, where significant risk arises from an unpredictable event.
Positioning of the Swiss Financial Sector
Despite the turbulence in the US, Skierka believes the Swiss financial sector is in a strong position overall, particularly following the 2023 financial statements. However, he notes that recessionary pressures are becoming visible, not just in real estate but also in the broader financial statements for 2024 and beyond.
Swiss banks, particularly cantonal banks, are relatively insulated from international risks, but they are not entirely immune. Skierka points out that local banks like Julius Baer have already faced reputational damage due to their involvement in global financing deals.
Conclusion
As the global financial landscape faces renewed challenges due to the commercial real estate crisis in the United States, Swiss banks and their exposure to these risks remain a critical area of concern. While the risks of contagion may be lower than during the 2008 crisis, the potential for significant disruption remains. Financial institutions in Switzerland must remain vigilant and prepared for unforeseen developments that could affect their operations.
