The ongoing volatility in the global banking sector has seen UBS take on Credit Suisse – a move likened around Europe to a ‘shotgun wedding’, with the role of the gun-toting parent being assumed by the Swiss government.
Under the terms of the deal, the cumulative financial risk the general public is shouldering to save Credit Suisse is set to reach CHF209bn (€210bn) – CHF100bn from the Swiss National Bank (SNB) for Credit Suisse and UBS, another CHF100bn for Credit Suisse, and then another CHF9bn for UBS as insurance in the event the bank sees large losses on certain assets during the takeover.
The share prices of both UBS and Credit Suisse were unsurprisingly impacted by the deal. UBS shares plummeted from CHF17.20 last Friday to CHF 14.68 on Monday, but then rose steadily before slightly declining towards today (they stand at CHF18.70 at the time of writing). Those of Credit Suisse, meanwhile, dropped off a cliff, falling from $2.07 on Friday to a flatlining $0.82 on Monday.
The reaction has been that of dismay in Switzerland, with Neuer Zurich Zeitung posting at least 20 stories since Monday offering news, analysis, and opinion of the deal. Some were light-hearted, such as Matthias Venetz questioning whether the Credit Suisse logo would be removed from the nation’s football strips.
Most, however, were not. Writing about the deal, for the deal, Fabian Schafer asked how risky the bailout would prove for Swiss taxpayers – and pointedly wondered whether the CHF 209bn being used to underwrite the deal represented a good bet for the Swiss taxpayer.
‘Disturbing dimensions’
“The sheer dimensions are disturbing,” he added. “CHF 09bn – that is far more than the total debt the Confederation currently has on its books (at the end of 2022 it was CHF 120bn). The amount also significantly exceeds the commitments made by the Confederation and the SNB in favour of UBS during the last banking crisis in 2008. In addition, the CHF 50bn the federal government has spent in connection with the corona pandemic since 2020 is also fading. This makes the question all the more urgent – how big is the risk that things will go wrong?”
Schafer also pointed out that the government’s rescue of UBS in 2008 topped ‘only’ CHF60bn – albeit with a larger level of risk. And that, he says, turned out reasonably well. But this week, he wrote: “How the CHF209bn bet will end, nobody knows for sure. Those involved in Bern are reasonably confident, without wanting to commit themselves. Above all, one thing can be heard again and again: no better option has been seen. Especially in the case of a disorderly bankruptcy, the economic risks for the general public would be significantly greater, it is said.”
The reaction elsewhere has been … colourful. Writing in a research note, Octavio Marenzi, CEO of Opimas, opined: “Switzerland’s standing as a financial centre is shattered. The country will now be viewed as a financial banana republic.”
‘Serious ramifications’
Marenzi later said to CNBC: “The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A country-wide reputation with prudent financial management, sound regulatory oversight and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.”
The Swiss reaction to Credit Suisse’s travails was a follow-on from the collapse of Silicon Valley Bank (SVB) in the US, which went under earlier this month following a run on deposits. Meanwhile, in Germany, the regulator BaFin has said that SVB can conduct lending business through its SVB Germany branch.
Wrote Reuters: “SVB had transferred its equity, receivables and liabilities to the bridge bank after its closure by California banking regulators earlier this month, and subsequently applied for permission from BaFin to open for clients.” This followed a moratorium on the German branch of the bank. Reuters added: “SVB Germany worked with German companies such as HelloFresh and Lilium. Its total assets stood at €789.2m at the end of 2022, according to BaFin.”
