The financial markets have long been warning on the risks posed by the massive interest rate hikes by central banks. But for us too, last month’s collapse of Credit Suisse was a previously unimaginable scenario. The takeover by UBS that has now been decided upon for the bank became possible only because the Swiss government put in place massive guarantees. The anger in the country is immense
and will inevitably result in financial institutions needing yet more capital and further regulations leading to more restrictive lending practices. But lessons from the past also teach us that banking crises are never resolved overnight and their negative effects are likely to stay with us worldwide for years to come.

Considering the steady increase in trouble spots around the world, the financial markets, and therefore our portfolios too, turned in a very gratifying performance in the first quarter of this year. The reasons for this are manifold, which is why we would like to address several points in detail below:

During the course of last year, interest rates rose sharply around the globe. Debt servicing is leading to ever higher interest costs, especially for highly indebted countries, and so public deficits are rising. The cost of borrowing is an increasing cause of funding difficulties for small and medium-sized enterprises especially, as they are unable to pass on interest costs to customers in full or can no longer obtain credit at all due to the banks’ more restrictive practices. The effects of interest rate rises only ever show through in the economy after a lag of several months and so we believe that an economic downturn is likely in the US and Europe in particular in the course of this year.