On Sunday, one of Switzerland’s biggest newspapers featured a drawing of Credit Suisse Group AG’s headquarters in flames. The image, meant to evoke what the headline said were the bank’s “last days,” was also a metaphor for the embarrassment and consternation the lender’s swift unraveling has caused in its home country.

After days of frenetic government-brokered talks, it’s being taken over by larger domestic rival UBS Group AG, whose headquarters sits close to Credit Suisse’s main building at Paradeplatz in Zurich’s financial heart.

With Credit Suisse’s fate seemingly settled after years of corporate scandals, infighting and misplaced investments, a nation that prides itself on orderliness and stability is left pondering the ramifications for its own reputation - as well as the potential economic and political fallout.

For some, the debacle also raises questions about Switzerland’s financial regulator and whether authorities should have stepped in earlier to head off a crisis before it got out of control.

“Switzerland has suffered another damaging blow to its reputation for prudence, stability and fiscal management,” said Kern Alexander, professor of law and finance at the University of Zurich. “This is another example where weak regulation leads to a banking failure and a crisis that we hope will be contained.”

One immediate area of focus is the near-inevitable job losses. Credit Suisse was already in the process of cutting some 9,000 positions to save itself, and one person familiar with the matter said the final toll could be far higher in a takeover by UBS.

The two lenders together employed almost 125,000 people worldwide at the end of last year, with about 30% in Switzerland, and there will be overlap in many roles.

On Sunday, UBS Chairman Colm Kelleher said management is “aware that the coming weeks and months will be difficult for many, especially employees,” but it’s “too early to say” what will happen.

There are just 30 banks in the world designated globally systemically important, and Switzerland is - or was - home to two of them, meaning it has more exposure to the industry than many similar-sized countries. Credit Suisse and UBS together wield 1.6 trillion francs ($1.7 trillion) of assets, roughly double the size of the economy.

The government has been pushing the idea that the deal between the two is a takeover, though some are calling it, quite simply, a bailout. And Swiss citizens are likely to be worried about the amount of public money now on the hook for a bank that has fallen so spectacularly from grace. The sweeteners required to get UBS on board includes 9 billion francs in direct guarantees and multiples of that in liquidity support.

“You cannot regulate away cultural shortcomings,” Finance Minister Karin Keller-Sutter said Sunday night in a thinly-veiled swipe at Credit Suisse’s recurring scandals.

Swissair Collapse

Switzerland has experienced corporate trauma before, most notably with the collapse of national airline Swissair, which grounded all flights just after the September 2001 terrorist attacks on the US and was later resurrected as Swiss, which is now part of Germany’s Deutsche Lufthansa AG. UBS got a state bailout during the global financial crisis of 2008, a topic that’s still contentious at home.

But for all their severity, those events came in the midst of crises rocking their respective industries.

Credit Suisse’s fall, by comparison, was the result of the failures of successive management teams. And the takeover by UBS marks the possible erasure of a name that’s grown synonymous with Swiss banking. The Swiss federal state was founded in 1848; Credit Suisse’s earliest predecessor is just eight years younger.

“It’s a unique situation in that we had two opposing titans, squaring off against one another daily across Paradeplatz,” said Jared Bibler, a former regulator at the Swiss Stock Exchange and author of Iceland’s Secret: The Untold Story of the World’s Biggest Con. “The rivalry felt as old as Red Sox-Yankees, Coke-Pepsi, or US-Russia. And now only one will remain. It will be a strange feeling in Zurich, for sure.”

The chaos at Credit Suisse stands in sharp contrast to the orderliness of a country where political parties govern by consensus, questions of national importance are decided via regular referendums and trains are almost never late. Switzerland consistently ranks at or near the top across a range of financial and socioeconomic measures, from GDP per capita to life expectancy.

It’s also built an economic bulwark that may serve it now. Unemployment is below 2%, far below the rates in neighboring Italy, France and Germany. The government debt-to-GDP ratio is about 40%, half the level in the euro area, and inflation just 3.4%.

That’s not stopping the Credit Suisse’s scandal-ridden demise from spilling into the political arena, just months before national elections that are due in October. Last week, the Swiss People’s Party voiced its opposition to a state guarantee and the Social Democrats accused the bank of having “displayed a lot of erratic behavior.”

“Ultimately, Credit Suisse failed because of a culture where the management took risks they couldn’t manage,” said Gerhard Andrey, who represents the Greens in parliament’s budget commission. “That exposed entire Switzerland as a financial center. We need regulation now that top executives cannot shirk and run from their responsibilities.”

The Social Democrats have called for setting up a parliamentary commission to look into the government-orchestrated rescue of Credit Suisse, Tages-Anzeiger reported on Monday.

“I’m scandalized by the fact they opened the floodgates with practically no limits to save a bank,” said Pierre Vanek, a Geneva city councilor from the left-of-center Liste d’Union Populaire who was handing out leaflets on Place Bel-Air, across from a Credit Suisse’s local head office.

UBS Credit Default Swaps

According to Octavio Marenzi, CEO and co-founder of consultancy Opimas, the UBS-Credit Suisse deal is “bound to generate legal and political resistance.” He sees a legal fight against the lack of shareholder approval, while people may try to challenge the government guarantees with a national vote.

“The Credit Suisse saga, despite the Federal Council’s announcement, is far from over,” he said.

As evening fell in Zurich on Sunday, the country tuned into the press conference for the deal that will turn Switzerland’s two foremost banking groups into one. But before it even began, financial markets that for weeks had been obsessing with the state of Credit Suisse had started turning their attention to UBS.

The cost of insuring UBS’s debt against default jumped, as investors reacted to the potential financial drag from swallowing its smaller competitor.

“It’s been bad but we can get over this and have a bank that’s a national champion,” said Charles-Henry Monchau, chief investment officer at Syz Group, a family-owned Swiss banking group with about 28 billion francs of assets. “My only concern is that we are going from too big to fail to too big to save.”

  - Bloomberg