Switzerland Finance Profile 2012

Grossbanken Profitability Bounces But Outlook Mixed We reiterate our view that the Swiss banking system will remain broadly stable, with the cantonal banks set to maintain their conservative stance towards balance sheet management. These domestically focused banks came through the financial chaos of 2008 and 2009 relatively unscathed (see our online service, May 31 2010, 'Domestic Banks To Help Underpin Recovery') as they were fairly well insulated from global headwinds. The same cannot be said for Switzerland's grossbanken, UBS and Credit Suisse, which both suffered heavy losses during the global financial crisis and remain linked to the global economy due to their considerable non-domestic investment banking operations. Although the economic outlook for much of the developed world is weak, we expect there to be moderate improvement in both banks' underlying businesses over the medium term, with Credit Suisse being the best positioned of the two. Balance Sheets Strengthened Despite significant systemic tail risks within the European banking system, particularly relating to sovereign debt holdings, we believe that UBS and Credit Suisse are well positioned to ride out any testing times ahead. Both banks maintain healthy capital ratios: UBS ended Q210 with a Tier 1 capital ratio at 16.4%, while Credit Suisse achieved a similarly strong 16.3%.