Foundation of a house of cards: The weaknesses of the capital market

Good morning dear readers,

it’s the end of a week when everything should seem normal, but nothing really was normal. At least not in the banking sector and certainly not in Switzerland. Everywhere, from Berlin to Zurich to New York and Washington, everyone who listens to the financial market seemed to put on a bizarre spectacle of normality – so as not to break it even more.

Because around the world there is now the bitter realization that some banks have the stability of a house of cards that could collapse with any shock, no matter how small. You only know how many of these fragile houses there are when it is too late. But one thing is now clear: the stability of the financial sector is an illusion – as demonstrated by the near collapse of the Silicon Valley Bank and Credit Suisse.

Today, the big Handelsblatt weekend title deals in detail with the question of how a banking system should be designed so that crises like the current one don’t happen again and again. At the end of the big analysis, there are four very specific recommendations on how the house of cards of the global financial system could get a solid foundation again.

The Handelsblatt weekend title: The banking system in free fall

The result of last week’s events was the miscarriage of a colossus. The major Swiss bank UBS bought its biggest competitor, Credit Suisse, and thus created a balance sheet total twice as large as Switzerland’s economic output.

Around 15 years ago, UBS was on the brink of annihilation and could only be saved through the intervention of the Swiss National Bank. But a radical change of course away from risk towards more stability brought the traditional company economic success again.

Now UBS is facing what is probably the biggest challenge in recent years – after the takeover, to integrate the former competitor Credit Suisse into its own structures. The Swiss number one is condemned to success, because its failure would have catastrophic consequences – not only in Switzerland.

But bad news for the big bank became known late Thursday evening: According to a media report, US authorities are investigating Credit Suisse and UBS, among others, in connection with any help for Russian oligarchs in circumventing sanctions.

With the takeover of Credit Suisse, UBS gained gigantic market power.

Conclusion: The new Swiss colossus must first deal with the past before he can fully devote himself to the future.

Crisis, what crisis? The question can be asked with a view to the balance sheets of the Dax companies, which have now been published. With a net profit of 117 billion euros, the 40 companies achieved their second-best result in history in 2022.

But there is much to suggest that the economic boom could be over. At the end of last year, a drop in profits of ten and a half percent indicated the beginning of a downward trend, which is likely to continue this year. Mathieu Meyer, partner at the management consultancy EY, predicts: “2023 will be characterized by high inflation, high interest rates and significant geopolitical tensions.”

In addition to these problems, the banking crisis will probably also have a negative impact on corporate profits. This means there are greater risks for the stability of the financial markets, which could also affect the real economy. This has not yet happened, but the uncertainty about the future can also be clearly felt in the Dax.

It is a feature of our interconnected world that an event on one continent can have a tremendous impact on people on a completely different continent. Who would have thought, for example, in 2019 that you would have to spend a lot of time in your own living room because of a wild animal market in Wuhan, China.

But this chapter is not about the corona virus, but about the small town of Port Arthur in the US state of Texas, which is experiencing a real boom due to the end of Russian energy exports to many countries. Construction workers are building blocks of houses in the almost deserted city center, as there is a plant for the largest US liquid gas company Cheniere nearby, where many people are currently finding work.


While American liquid gas keeps people from freezing in Germany, it is giving an entire region new impetus in the USA. Handelsblatt US correspondent Katharina Kort took a closer look at the boom in energy exports. Her report focuses on the small town of Port Arthur, which is now planning to open new restaurants and cinemas.

Finally, we will stay briefly in the USA. There is currently one topic that is bringing the otherwise quarreling Republicans and Democrats together: a possible ban on the Chinese video platform Tiktok. Because in Washington there are concerns that the Chinese government could confiscate data via Tiktok or spread misinformation.

To allay those concerns, the company’s CEO, Shou Zi Chew, traveled to the United States. But the action backfired. He promised that it would soon no longer be possible to retrieve sensitive user data in the USA from China, but then added sheepishly: “Today there is still some data that we have to delete.”

A rhetorical tactic that Tiktok users can learn from. When a teenager is asked if he has tidied his room, the answer should be, “Soon my room will be tidy. Today there are still some things that need to be cleaned up.”

I wish you a good start into the day, don’t put anything off until later.

From Monday, my esteemed colleague Christian Rickens will welcome you again in the usual manner and quality.

Best regards

Teresa Stiens
Editor of the Handelsblatt

Morning Briefing: Alexa

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