What would happen if Credit Suisse goes bust?

Here’s the official announcement from CS.

Under the terms of the merger agreement all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse.


Curious about what the following excerpt really means:

On Sunday, Credit Suisse has been informed by FINMA that FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.


I hope it does not mean what I understand it means.
For me it means that AT1 bond holders will lose their investment, while shareholders will get something.

  • Would be in direct contradiction with the capital structure (bondholders should have priority over shareholders)
  • Would create disarray in the AT1 bond market tomorrow, with possibly many more banks in difficulty…

You did.

Either way, we’ll both (as shareholders) be holding that bag. :wink:

At least we can safely conclude that 16 Billion CHF liabilities had to be written off in urgency. It hints at a symmetrical hole in the assets known to the people who discussed the deal but not to the rest of the world.
We can only hope for UBS that there are not much more bad surprises in the CS balance sheet.
Not to mention that the sharp rise in interest rates will guaranteed do additional damage to most banks, healthy or not.

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I just hope that this won‘t have a negative impact on the future of UBS. They are maybe taking over way more garbage than they are currently assuming. This could srsly damage the whole economy, not only the banking industry.


14 posts were split to a new topic: Additional Tier 1 (AT1) bonds

Another question: What are the odds that a fusion between two unwilling companies, one of them with the back at the wall, is successful?

I also hope that CS is not toxic enough to poison UBS.

What an amazing downfall. Big blow to Switzerland’s image of “stability” that even with all the SNB backing last week (50bn credit line) the panic continued such that they feel they need to sell Credit Suisse so quickly over the weekend. And to CS’s biggest competitor! (monopoly/anti-competition just ignored?)

Now we better hope in the short term that the panic doesn’t continue to UBS. SNB adding some even more extreme backing there to try and prevent this :laughing: .

Summarised points from the FT (thanks to gpt-4):

  • UBS agrees to buy Credit Suisse for $3.25bn after urgent negotiations to prevent a crisis in the Swiss banking system.
  • Swiss National Bank’s emergency credit line of $54bn failed to stabilize Credit Suisse’s falling share price.
  • Swiss president Alain Berset announces that the takeover was necessary to restore market confidence.
  • UBS will pay around SFr0.76 a share in its own stock, worth SFr3bn, up from an earlier rejected bid of SFr0.25.
  • Swiss National Bank offers SFr100bn liquidity line to UBS, backed by a federal default guarantee.
  • Swiss government provides a loss guarantee of up to SFr9bn after UBS bears the first SFr5bn of losses on certain portfolios.
  • SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds will be written off to zero.

The credit default swaps for UBS have gone up substantially on the announcements. I have no access to the live data myself but screenshots of the charts are circulating on Twitter.

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Bloomberg thinks what you think.

(Also, see Reuters reporting on it with similar thinking as yours)


I hope this time someones goes to jail.

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What will the UBS stock do tomorrow?

Who do you want to go to jail? This whole mess is a global crisis in confidence on banking systems because of interest rate rises. Quite hard to point a finger at someone/some group when the core issue is so systemic.

It will either go up or down, by a lot :smiley: .

From chatter now I would guess down. If the SNB’s CHF50bn credit line to CS did nothing to prevent further panic then not sure the CHF100bn will make much difference.

UBS will make a lot of money off of this in the long run if they can be lucky enough to avoid further panic…


I don’t think that was the issue for CS, was it? They were well capitalized. (CS is different from SVB)

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No it’s not just a “crysis of confidence”. It’s the result of greed-fueled speculative banking (derivatives) and malpractice.

Someone at CS got rich taking this huge risks and doing this shady operations. And now that it went to shit, the public has to cover it up. Privatize the profits and socialize the losses.

Neue Zürcher Zeitung
Credit Suisse, a bank beset by scandal and losses

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No matter how well capitalised a bank is, when customers try and withdraw 20-40% of the assets overnight the bank is going to fail. Banks run on fractional reserve systems to push more capital into the economy and drive investment and growth. Capital ratios are like 10%.

SNB tried to slow the panic by giving a CHF50bn credit line but when customers keep withdrawing past that what do you do?

As far as I know (and I think anyone right now knows?), credit suisse was not insolvent. We will find out in the coming months as assets are unwound/ingested what was really happening behind the scenes.

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Interest rates are a convenient scapegoat, but I don’t think this applies to CS here. I think this has more to do with the long string of scandals (see below) that CS accumulated over the last decade. When CS reported last week that there were material inadequacies in its internal risk control over the last few years, depositors lost their trust in the bank and started moving their money out on Thursday and Friday, fearing that a lot more was to come.

As a brief summary:

  • Bankruptcy of Archegos (2021) → $5 bn loss
  • Bankruptcy of Greensill (2021) → $7.5 bn loss
  • CEO stepping down in 2022 because he thought he was above Covid guidelines
  • Money laundering and drug trafficking scandal with a Bulgarian organization (2020) → CHF 2 milllion fine.
  • CEO stepping down in 2019 because of employee shadowing scandal
  • Several money laundering scandals in 2018 with Petrobras, FIFA and PDVSA
  • Conviction of a CS wealth manager to jail (2018) after he lost $143 million for the Georgian prime minister
  • $5.8 billion fine (2017) for the CS role in subprimes ten years earlier
  • Corruption scandal in Mozambique (2016) with Tuna bonds and a $475 million fine.
  • Libor manipulation scandal (2014). Of course CS was part of it.
  • Tax evasion scandal (2014). Pleads guilty and pays a $2.6 bn fine.
  • Iran Embargo bypass (2009) → fine of $536 million

Sure, this is a valid argument. But if we weren’t in this macro environment (and recent headlines weren’t on people’s mind - SIVB, FR, etc.) I don’t think we would have had this run on the bank. We will find out in the future whether there is some more mismanagement that pushed them over the edge or not.

As stated by Julianek and Kilbim, interest rates isn’t the main story when it comes to CS. In the US, deposits are fleeing small and regional banks to go into too big to fail. That effect could be put on fear of banks failure due to inappropriate risk management during the recent interest rates hikes (or plain misfortune for those who may get caught in the crossfire). CS is/was a too big to fail bank, so should have had a positive inflow coming from the current run for safety, yet it didn’t happen because the fear of them going bankrupt took roots in internal scandals rather than just general economic conditions.

Internal scandals are discrete events that should be attributed to the bank alone. What happened to CS couldn’t have happened to just any other bank in their position, it is the result of their management and corporate culture.

Though I’ll grant you that when times are fine, the rising tide floats all boats and that failures of management show mainly during rough times, when the tide goes out and we see who was swimming naked. Not everybody chose to swim naked, those who did have to bear the consequences of it and can’t hide behind “well, times were rough”, because being able to successfully lead the ship in rough times is the essence of good management and we want good managers at the top of companies.

Similarly, I’ve seen on other boards people complain that “shareholders don’t get protected”. The primary roles of shareholders are to provide capital (sure) but also to nominate and keep check on the company’s executives. Failure of the executive team is a failure of the shareholders’ watch. They are responsible for it and bear the brunt of it, as they should. If we don’t want to assume the risk when it manifests, why should we get to partake in the gains?