Moody’s: Swiss government, bank ratings unaffected by support measures

Moody's Investors Service said in two separate reports that the measures announced by Switzerland to support its largest banks will not endanger the creditworthiness of the Swiss government nor will they lead to wholesale rating changes in the Swiss banking sector.
Last Thursday, the Swiss government announced a range of measures aimed at strengthening individual banks, notably UBS and Credit Suisse, and the functioning of Switzerland's banking system overall. Specifically, the Swiss government is going to reinforce the deposit insurance system; transfer illiquid assets from UBS's balance sheets and bolster its capital bases; raise further the regulatory capital requirements for Credit Suisse and UBS; and guarantee for all Swiss banks new short- and medium-term inter-bank liabilities as and when necessary.
"Moody's believes that the Aaa rating of the government of Switzerland can withstand a large-scale support operation for its banks," said Alexander Kockerbeck, Vice President-Senior Credit Officer in Moody's Sovereign Risk Group. This is in line with Moody's view that the ratings of other European governments are not affected by the support measures they have so far announced for their respective banking systems.
In the case of Switzerland, Moody's opinion is based on (i) the underlying economic and institutional strength and financial robustness of the Swiss government; (ii) the quality of any bank assets that the government would acquire through the announced support operations, thereby lowering the net increase in government debt; and (iii) the
likelihood that such an interpolation of the government balance sheet would better assure an early economic recovery.
Moody's will most likely maintain Switzerland's Aaa rating for a number of reasons.
Thse are the Swiss government's ability to raise potentially larger amounts of debt through (i) its access to a large pool of domestic savings, in a country with a savings rate equivalent to nearly one-third of GDP; (ii) the Swiss franc's role as an international reserve currency; supporting the country's sterling reputation; and (iii) for short-term liquidity pressures, the Swiss central bank's unlimited swap line with the US Federal Reserve, which provides very precious relief at times when dollar funding is scarce.
Overall, Moody's views the Swiss government's proposals as a positive development, albeit not strictly necessary for many of the regional and private banks. The rating agency believes that the Swiss government's initiative should strongly contribute to restoring investor confidence in the domestic and international banking systems.
Moreover, the rating agency expects that UBS and Credit Suisse are, and will likely remain, the main beneficiaries of the support package announced by the Swiss government. While also potentially benefiting from these announcements, Moody's does not believe that the Raiffeisen Group or any of the regional or private banks which Moody's rates in Switzerland are the key addressees of this announcement, and these will therefore not be subject to any imminent rating implications.
"It is crucial for market participants to differentiate between UBS and Credit Suisse and their temporary problems on the one hand, and the Raiffeisen Group and the regional and private banks on the other, which mostly continue to display comparatively moderate business and financial risks and are generally in good health," explained Versondert.