A sign of Swiss banking giant UBS is seen on their headquarters on May 8, 2019 in Zurich.
Will UBS move stave off panic? Economy reporter weighs in
01:32 - Source: CNN
London CNN  — 

The last-minute rescue of Credit Suisse may have prevented the current banking crisis from exploding, but it’s a raw deal for Switzerland.

Worries that Credit Suisse’s downfall would spark a broader banking meltdown left Swiss regulators with few good options. A tie-up with its larger rival, UBS (UBS), offered the best chance of restoring stability in the banking sector globally and in Switzerland, and protecting the Swiss economy in the near term.

But it leaves Switzerland exposed to a single massive financial institution, even as there is still huge uncertainty over how successful the mega merger will prove to be.

“One of the most established facts in academic research is that bank mergers hardly ever work,” said Arturo Bris, a professor of finance at Swiss business school IMD.

There are also concerns that the deal will lead to huge job losses in Switzerland and weaken competition in the country’s vital financial sector, which overall employs more than 5% of the national workforce, or nearly 212,000 people.

Taxpayers, meanwhile, are now on the hook for up to 9 billions Swiss francs ($9.8 billion) of future potential losses at UBS arising from certain Credit Suisse assets, provided those losses exceed 5 billion francs ($5.4 billion). The state has also explicitly guaranteed a 100 billion Swiss franc ($109 billion) lifeline to UBS, should it need it, although that would be repayable.