The Scary part of Switzerland

By Travis Johnson, Stock Gumshoe, February 24, 2009

Just a note that there is now a bit of a “fear the Swiss” trend running now, largely by virtue of the big loans that Swiss banks made in Eastern Europe. There’s even a fairly aggressive article from Newsmax that speculates that Switzerland could be the next Iceland, and see its currency collapse.

Add that on top of what seems to me to be overreaction to the UBS privacy crisis (the US has sued for access to information on private accounts regarding tax evasion), and no one is quite sure what Switzerland stands for right now, and whether the country will remain a haven for banking privacy. I only say overreaction because this seems like a specific case, and when the smoke clears I doubt this will be the end of private Swiss banking, but that’s just my opinion.

I didn’t mention any of this Eastern Europe exposure in my writeup of the Swiss Helvetia Fund (SWZ), largely because the fund is underweighted in banks, but there is quite possibly more risk than I’ve assumed in the Swiss economy in general. And the largest financial holding in SWZ is a private bank, Julius Baer, so if Swiss banking ceases to exist that would certainly hit the shares, too.

That doesn’t mean we should all necessarily run from an investment in big Swiss multinationals, which is largely what SWZ is, but it does give some more food for thought for those who want to consider the macro picture. If the country’s currency drops or the nation becomes insolvent that doesn’t necessarily mean that Nestle, Novartis and Roche will suffer (any more than California circling the drain means HP will collapse, one might argue), but all of the big multinationals in Switzerland will probably suffer if people lose faith in the Swiss currency, or if the Swiss are really forced to give up centuries of independence and join the euro.

Eastern Europe is being talked about as the next crisis now, and one that may well bring down many European banks (not that there are many that have far to fall at this point), and the rumors and fear seem to be moving steadily westward — Austria first, then Germany, then Italy and Switzerland. We’ll see how it all shakes out.

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