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 .
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.
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 .
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…
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
www.nzz.ch
Credit Suisse, a bank beset by scandal and losses
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.
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.
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?
Too big to fail regulations obviously didn’t work and there’s no guarantee that any regulation or equity requirement would prevent a bank’s bankruptcy anyway.
Having only one large bank for the Swiss economy is a big risk imo.
Shouldn’t the new UBS-CS mega bank be split into like three separate banks?
I am not so sure about it: today’s deal locates the capital at ~3 Billion CHF, but conditional to a wipe-out of ~16 Billion in bonds.
So it would mark the estimate for today morning’s value of CS’ capital at -13 Billion, wouldn’t it?
The issue highlighted by auditors and SEC last week was “risk assessment process to identify and analyze the risk of material misstatements in its consolidated financial statements”.
It means the process to prepare the financial statements was weak, but it does not say that there was an actual material misstatement. It does not say there was an issue in risk control outside of the financial statements either.
I really hope the issue PWC found was a meaty one and they were not just acting in CYA (Cover Your Ass) mode. Otherwise they have contributed to wiping out the shareholders and creditors they are supposed to have been protecting.
I doubt the government was looking at it in that way. They only care about putting on a face of stability and trying to prevent the entire swiss banking system from going into turmoil on Monday morning (while also politically trying to make it look like its not a massive bailout at the taxpayers expense).
The government won’t have any more clue than the public markets who valued it at CHF8bn on Friday. The Friday valuation also included the risk premium of it fully collapsing on the weekend and is the price of all future discounted cash flows so wouldn’t even map 1:1 to the question of its current insolvency.
In the end, the company had ~CHF1.5tn of hugely complex exposures which get repriced every day and have been repriced heavily with all the macro events of late. Right now no one knows (not even UBS) whether they got a good deal or not.
This is my read of the story so far, I’ll be glad if I can be corrected or information that I missed is provided. Please note that these are hypotheses, the known naked facts have been stated in previous messages.
CS couldn’t be presented as insolvent, whether because they indeed were not, it couldn’t be assessed if they were or stating that they were would have created panic the swiss regulators wanted to avoid.
As such, shareholders couldn’t be wiped out. UBS assessed the value of the company was no more than CHF 1B.
CS’ board had to show they did put up a fight on behalf of their shareholders so they refused the 1st deal.
UBS agreed to raise its price but made it contingent on the 16B in AT1 bonds debt being written off and the 9B guarantee to cover potential losses since it didn’t have time to properly assess the value of their acquisition.
Regulators fought back to have UBS pay for the first 5B of losses before activating the guarantee.
Having a deal that allowed for the peaceful resolution of the issue and both boards being convinced they didn’t have a better option on the table, the Federal Council acted to bypass a shareholders’ vote.
The liquidity guarantee was going to be there from the start since that is what is perceived will most effectively calm the fears of the financial markets.
As a result, we don’t know the real value of CS (at least for now), we don’t know if it was net positive, was under or overvalued. Shareholders did get something but some may think they are being screwed over by the swiss authorities and may cling to the idea that the business was worth much more. Some bondholders got wiped out before shareholders.
I’m not sure I like the results of that one. It feels messy to me. We’ll have to see how it pans out.
By reading and partipating to this forum, you confirm you have read and agree with the disclaimer presented on http://www.mustachianpost.com/
En lisant et participant à ce forum, tu confirmes avoir lu et être d'accord avec l'avis de dégagement de responsabilité présenté sur http://www.mustachianpost.com/fr/
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
.
.
…