While banks all over the world ride economic and political roller coasters, Swiss banks have traditionally had a pretty smooth ride.

In fact, three of Switzerland's giant banks are among the seven triple-A-rated banks in the world. The country's big banks are better capitalized than the top guns in the United States and are free of many of the legal constraints that U.S. banks face.

And since many of Switzerland's big players can afford to look elsewhere for growth -- particularly in New York, London, and Tokyo -- other international banks are being competitively threatened.

Consolidation Here, Too

Yet strange things are happening in Swiss banking. Strange for Switzerland, that is.

"You've got a county that is overbanked and facing consolidation," said a New York-based Swiss bank executive.

"Switzerland is somewhat maxed out," agreed Michael Snow, senior vice president, treasury, at Union Bank of Switzerland in New York.

The past couple of years have been tougher for Swiss banks than any in recent history. An economic recession at home, high inflation, political pressure to keep mortgage interest rates low, and a collapse of real estate markets have soured loans and added to operating expenses.

And that is not even to mention the anxiety concerning a historic vote, due this year, on whether to join the European Economic Area.

These factors led Moody's Investors Service to do the once unthinkable this year and down-grade debt ratings of two of the Big Three-Swiss Bank and Credit Suisse. And there are rumors that Switzerland's best and biggest, Union Bank, will go on Moody's "watch" list.

The main concern at Moody's is the commercial real estate industry's downturn; the market is not expected to pick up until 1993. Swiss banks' shrinking retail deposit pool, as depositors seek higher yields, is also a worry, according to Moody's.

But not everyone is worried.

S&P Affirms Top Ratings

Standard & Poor's Corp. affirmed its triple-A ratings for all three big banks in May.

"It isn't that we have our eyes closed," explained S&P analyst Resa Lundkvist. "It's been a tough year for Swiss banks, but they are doing a good job in a difficult environment."

She noted that, while mortgage loans at home may be underwater, the banks are making record profits on investment banking activities abroad. "These are large institutions with very diversified income streams and strong capital," she said.

Swiss banking is dominated by the Big Three, which operate domestically as retail banks emphasizing mortgages.

Internationally, Union Bank, Swiss Bank, and Credit Suisse push investment banking services, corporate lending, and private asset management -- all areas in which they excel.

Swiss banks offer better loan opportunities to corporate borrowers, who are left with fewer choices because Japanese banks are retrenching, said Ms. Lundkvist.

"Overall, the U.S. continues to be a very attractive market for us, and we clearly intend to take advantage of this," said Willi Wittwer, executive vice president and head of U.S. operations at Swiss Bank Corp.

"We are making a major push to expand our capital markets and treasury activity, which is an integral part of our global strategy," Mr. Wittwer said.

Ms. Lundkvist noted: "Swiss banks not only are able to pick up business but [are] able to do so at a much higher margin. They are picking the cream of the business."

Still, the Swiss have fundamental concerns about their bank's future.

As the countries of Europe move to become one market, the Swiss are under pressure to join or be left behind. Bankers are hoping the people approve the proposal to join the European Economic Area. [Tabular Data Omitted]

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