UBS will digest Credit Suisse thanks to guarantees and liquidity from the Swiss central bank. Relief and blessing from the ECB and the Fed

20 March 20231 year ago babelfish

Operation concerted by the Swiss authorities to have Credit Suisse acquired by UBS also thanks to liquidity and guarantees provided by the Swiss central bank. Relief from the ECB and the Fed. Facts, numbers and insights (bonuses guaranteed at the top of Credit Suisse)

Systemic concert to avoid the complete default of Credit Suisse which would have caused financial panic not only in Europe: buy the Ubs.

The Swiss central bank pumps liquidity and guarantees to give UBS the opportunity to buy Credit Suisse, which will suffer job cuts and restructuring in the business (goodbye to the investment bank). Facts, numbers, scenarios and one certainty: bonuses paid to Credit Suisse top management anyway.

In a three billion Swiss franc deal, Credit Suisse will be absorbed by its competitor UBS. The operation was made possible with the support of the Confederation, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB).

Here are all the details.

WHAT HAS BEEN DECIDED FOR CREDIT SUISSE

A three billion Swiss franc operation to create one of the largest banks in Europe. The wedding between Credit Suisse and UBS is the first between two systemically important banks since the 2008 crisis. And it was concocted within a few days with the help of the Swiss authorities, who organized the complex operation under the auspices ( implicit) of the American financial authorities.

THE TERMS OF THE AGREEMENT BETWEEN CREDIT SUISSE AND UBS

The deal values Credit Suisse at three billion francs, less than half of the 7.4 billion at Friday's close and a fraction of the 100 billion at its peak in 2007.

TIMETABLE OF THE CREDIT SUISSE-UBS TRANSACTION

The agreement with Ubs will be closed within the year. UBS chairman Colm Keller and CEO Ralph Hamers will maintain their roles within the bank that will be born from the wedding, although the management of Credit Suisse will remain in place until the closure of the agreement.

WHAT THE NEW CREDIT SUISSE WILL BE LIKE

The new bank will have invested assets of 5,000 billion dollars. UBS plans to downsize Credit Suisse's investment bank: "We want to downsize it and align it with our more conservative risk culture," Keller said.

JOB CUTS

While specifying that it is still too early to quantify them, Ubs said that it will be a significant number, according to rumors of the order of 10,000 cuts. UBS has more than 50,000 employees worldwide, 17,000 of them in Switzerland. There is talk of 10,000 possible redundancies. UBS chairman Colm Kelleher said the size of Credit Suisse's investment banking unit will be reduced, which "will account for no more than 25% of the bank's assets."

HELP FROM THE SWISS AUTHORITIES

UBS has secured a liquidity facility of 100 billion francs from the Swiss central bank. And the government has offered 9 billion guarantees against any losses for Credit Suisse. Guarantees that are like an "insurance policy" that will be triggered if losses exceed a certain threshold.

CONFIRMED BONUSES

The bonuses will be paid, as well as the promised salary increases: Credit Suisse reassures its staff, and specifies that the bonuses will be paid as scheduled on March 24th. This was reported by the Bloomberg agency.

THE APPLAUSE OF ECB AND FED

The solution met with the immediate approval of ECB president Christine Lagarde and, overseas, of US Treasury Secretary Janet Yellen and Fed chairman Jerome Powell. Treasury Secretary Janet Yellen and Federal Reserve Board Chairman Jerome Powell welcomed "today's announcements by Swiss authorities in support of financial stability." The US banking system's capital and liquidity positions are solid and the US financial system is resilient. We have been in close contact with our international counterparts to support their efforts."

THE COMMENTS OF THE SWISS AUTHORITIES

"It is a solution supported by the government, which ensures the framework conditions for its success," said the President of the Confederation Alain Berset at a press conference. He recalled that Credit Suisse is one of 30 banks considered "at systemic risk" in the global banking system and stressed that its fate is "decisive" for Switzerland and its economy.

The decision "was welcomed and satisfied by several governments, including those of the United Kingdom and the United States, when they were informed by the Swiss authorities of the solution found," stressed Finance Minister Karin Keller-Sutter. The Swiss Confederation offered a guarantee equivalent to more than 9 billion euros to reduce the risks incurred by UBS in the acquisition of Credit Suisse. This guarantee works "as if it were insurance" and will cover any losses "from a very specific portfolio" of Credit Suisse identified as potentially problematic, and only if the losses exceed a threshold that the minister has not specified.

Keller-Sutter said Credit Suisse's bankruptcy "would have irreparable consequences" not only for Switzerland, but also for the banking sector in the rest of the world, and that for this reason "we assume responsibilities that go beyond our borders" . According to the minister, the agreement "is not a bailout" because this figure only applies in the case of banks that cannot assume their obligations due to insolvency, which has not happened in the case of Credit Suisse.

“This is not a problem of solvency, but a crisis of confidence,” he clarified. However, the bank's asset flight last week and the sharp drop in its share price within days opened up the real possibility of a bankruptcy, "which would have had a huge collateral impact, which could have spilled over to UBS and other banks” around the world, said the minister.

The authorities confirmed that a possible merger between Credit Suisse and UBS had already been discussed on the 15th, but that it was decided to maintain the utmost secrecy to avoid triggering further nervousness on the markets. "The solution we have found is solid and suitable for stabilizing the situation and reassuring the financial markets," said Berset.

UBS chairman Colm Kellenher, who was present at the same news conference, confirmed that the transaction will not be subject to a shareholder vote and that its final conclusion could take weeks or even months before it is fully approved by the regulatory bodies. The transaction will have an impact on compensation and, explains Kellenher, and announces: “We will reduce the size of the investment bank CS. When it comes to job cuts, it's too early to say more. We must first analyze the situation and then we will decide”.

ALL THE CREDIT SUISSE SCANDALS

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/ubs-digerira-credit-suisse-grazie-a-garanzie-e-liquidita-della-banca-centrale-svizzera-sollievo-e-benedizione-di-bce-e-fed/ on Mon, 20 Mar 2023 04:14:04 +0000.