Switzerland's political elite was secretly making preparations that would shock the world in the days leading up to a hastily arranged press conference held on Sunday that would make the world's front pages.
While the nation's central bank and financial regulator publicly declared that Credit Suisse was sound, behind closed doors the race was on to rescue the nation's second-biggest bank.
The chain of events led to the erasure of one of Switzerland's flagships, a merger backed by 260 billion Swiss francs ($280 billion) of state funds and a move that would upend global finance: Favoring the bank's shareholders to the detriment of bond investors.
The events that unfolded in the landlocked nation – long a bastion of political neutrality that has secured its standing as a safe-haven favorite for wealthy elites – go against one of the key lessons of the 2008 financial crisis. The rescue concentrates even greater risks into one banking behemoth, UBS Group AG.
Also, making bondholders cushion the blow to stock investors from the UBS-Credit Suisse tie-up rattled lenders, pushing up their borrowing costs in a threat to world economic growth.
Battered by years of scandals and losses, Credit Suisse for months had been battling a crisis of confidence of its own making. In a matter of days, its demise was sealed.
Soon after news broke on March 12 that the United States would step in to guarantee all the deposits of two mid-sized lenders struggling to keep up with demands for cash, the spotlight was on Credit Suisse and how it would maintain depositor confidence.
Customers had already pulled $110 billion from the Zurich-based bank in the last three months of 2022, outflows that it was fighting to reverse.
A rainmaker who brokered several European bank rescues during the financial crisis, speaking on condition of anonymity, told Reuters that after seeing the U.S. banking collapses, there was little doubt UBS would be called upon to shore up Credit Suisse.
The banker on March 13 rang up UBS warning the world's biggest wealth manager that it should prepare to receive a call from Swiss authorities.
By Wednesday, two days later, Credit Suisse was swept up in a full-blown crisis. Comments by the chair of Saudi National Bank, Ammar Al Khudairy, who said that he could not invest further in the Swiss bank, sent Credit Suisse shares into a tailspin.
It mattered little that Credit Suisse's biggest investor also reiterated confidence in the lender. "They're a globally systemically important bank so... monitored daily," he told Reuters. "There are no surprises as you would have in a middle-sized bank in the US. It's a completely different ecosystem."
Significant deposit outflows followed, the source who would advise UBS on the merger told Reuters, declining to put a number on them.
In the banking centers of Zurich and Bern, the Alpine state's capital, the pressure was building. Yet as the discussions to salvage Credit Suisse got underway, Swiss regulators FINMA and the Swiss National Bank said that "the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets," conceding, however, that they would fund the bank with unlimited access to funding.
Credit Suisse, too, was conveying stability. The bank told Reuters on Thursday that its average liquidity coverage ratio, a key measure of how many cash-like assets the bank has, did not change between March 8 and March 14, despite the global banking crisis.
Swiss Finance Minister Karin Keller-Sutter, a former translator and teacher just months on the job, told the Sunday media conference that additional support for Credit Suisse had been agreed upon but held secret for fear of panicking people with a succession of emergency announcements.
She said was in close contact with U.S. Treasury Secretary Janet Yellen and British Treasury chief Jeremy Hunt. Both countries have large Credit Suisse subsidiaries employing thousands.
There was far less communication with the European Central Bank (ECB) in Frankfurt, said one person familiar with the matter. Credit Suisse's arms in Luxembourg, Spain and Germany were far smaller.
European regulators were, in particular, worried that the Swiss could impose losses on bondholders – a radical step that they did take, as the costs of a rescue spiraled for taxpayers.
"They did this on their own," said the person, asking not to be named, describing the outcome as a "big surprise."
A spokesperson for FINMA said that although it laid emphasis on Britain and the U.S. because of the scale of Credit Suisse's business in those countries, it had also informed European authorities.
Not everyone, however, was kept in the dark.
Saudi investors, with roughly a 10% stake in the bank, put pressure on the Swiss, warning that they could take legal action if they did not recover some of their ill-fated investment, said another person with knowledge of the matter.
"The money had to come from somewhere," said one of the officials involved in the negotiations.
The Credit Suisse board, interested in preserving some unity in an increasingly fractious setting, stood behind them, and argued for a payout to shareholders, said the person.
Regulators, too, wanted to avoid a wipeout for shareholders that would have resulted in the winding up of the bank, potentially a bigger headache for the nation and a loss of face just hours after standing by Credit Suisse.
In the end, the Swiss agreed, choosing to wipe out 16 billion francs of bonds, compensating shareholders with 3 billion francs and turning a key principle of bank funding on its head – namely, that shareholders rather than bondholders take the first hit from a bank failure.
It marks an ignominious end for an institution founded by Alfred Escher, a Swiss magnate affectionately dubbed King Alfred I, who helped build the country's railways. Credit Suisse banks many Swiss companies and citizens – including Finance Minister Keller-Sutter.
On Sunday, as a panel of Swiss officials and executives announced the deal, they were unrepentant.
"This is no bailout," Keller-Sutter told journalists. Thomas Jordan, the central bank chief, defended the package, as necessary to counter any wider shock.
"The taxpayer in this scenario has less risk," said Keller-Sutter. "The bankruptcy would have been the highest risk because the cost to the Swiss economy would have been huge."
Still, markets are reeling from the extraordinary turn of events.
"When you are a bank for billionaires, deposits can fly away very quickly," said one of the people involved. "You can die in three days."
