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Whose shoes would you rather be in now? UBS, once the stalwart of Swiss banking, last year became one of the bloodiest victims of the credit crunch after $18 billion of writedowns. Credit Suisse, once an accident-prone rival, was enjoying a moment of glory after largely avoiding the subprime meltdown.
That did not last long. Credit Suisse subsequently found it had incorrectly calculated the value of its positions due to "intentional misconduct" by a group of traders. It now faces potential regulatory action for not enforcing adequate controls.
On top of that, it warned on Thursday that it was unlikely to be profitable in the first quarter, due in part to writedowns but also to worsening market conditions in March. (These were not reflected in US investment banks' numbers this week.)
In total, Credit Suisse wrote down $3 billion last year, of which more than $1 billion was from the trading irregularities. By recent banking standards, that is small change. Lax controls may have contributed to its problems but renewed efforts on this front may now make Credit Suisse as hard a place as any for traders to conceal losses.
The temptation to do so in today's tough markets may be a better reason for fearfulness about the whole sector than for marking it down further.
However, Credit Suisse's latest banana skin is likely to put paid to recent speculation that, if UBS' troubles mounted due to further writedowns, Swiss authorities might push UBS into the arms of Credit Suisse.
While awkward, dealing with regulators is not Credit Suisse's biggest challenge. Regulators may take action but will be careful not to shake confidence further. The more pressing worry is turning a profit in investment banking, if this month's adverse conditions persist. That is not just a problem for Credit Suisse. UBS' subprime problems may dwarf those of its rival but, in a tough banking environment, it may find it easier to make money from its legendary wealth management business and its strong equities franchise.
Propping up mortgages
Bank of England officials, initially the dukes of moral hazard when the credit crisis broke, must be worried. They are considering buying up mortgage-backed securities in an attempt to ease conditions in the UK mortgage market, as part of potential concerted action with other central banks.
In difficult times, it is only sensible to consider all the options. The Council of Mortgage Lenders warned on Thursday of "ongoing problems in the mortgage funding markets", as UK mortgage lending declined seven per cent month-on-month in February.
The UK authorities lack the wide range of tools available in the US, for example using state-sponsored giants Fannie Mae and Freddie Mac, to help ensure mortgages remain available. And the relatively small size of the UK MBS market - with about £250 billion outstanding - means that buying in sufficient quantity to provide support is feasible.
Nevertheless, this would be a huge step. The Bank of England has so far been less active than either the European Central Bank or the Federal Reserve in providing liquidity to financial institutions. Heavily marked-down MBS may now be undervalued. But buying on that basis means engaging in proprietary trading using taxpayers' money. What if that view turns out to be wrong?
If MBS are substantially undervalued, surely market mechanisms - admittedly functioning poorly of late - will soon kick in? There have been signs of bottom- fishing in the US municipal bond market and hedge funds are reportedly eyeing the MBS market.
There is indeed a real danger that central banks could solve banks' liquidity problems without breaking the mortgage market logjam. But turning into a buyer, rather than a lender, of last resort would be well, the last resort. However, there is at least a chance that even the prospect of central bank intervention could finally encourage the vultures to swoop in.
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