“Destiny Day”: Tough Struggle for the Future of Credit Suisse

“Destiny Day”: Tough Struggle for the Future of Credit Suisse

The Financial Times (“FT”) and Bloomberg reported that UBS has offered to buy its smaller rival for up to $1 billion. Apparently, in the opinion of the CS far too little. Bloomberg reported that CS rejected the offer. To classify: On Friday, the major Swiss bank was still worth around CHF 8 billion on the stock exchange. Swiss authorities plan to change the law to avoid a shareholder vote on the transaction, the FT wrote.

As the “FT” reported, citing sources familiar with the matter, the Swiss National Bank (SNB), the Swiss Financial Market Authority (FIMNA), CS and UBS are still working flat out to find a solution for a complete or partial solution during the course of Sunday find takeover. The government has been holding an emergency meeting since the early hours of the morning, following a meeting the previous day.

Federal government apparently considering nationalization

Another variant also emerged in the afternoon: The federal government is considering the partial or complete nationalization of Credit Suisse as an alternative to the takeover by UBS, as reported by Bloomberg, citing informed circles. The situation is very volatile and could continue to change, Bloomberg quoted the people as saying. According to several reports, the Swiss government wants to hold a press conference on Sunday evening.

In any case, the government is under pressure: CS is one of the 30 systemically important banks worldwide (“too big to fail”) – if it fails, it would have serious consequences for the financial system. The simplest solution to avert this scenario is the takeover by UBS. And above all because this can also be implemented most quickly. As the “FT” reported, an “accelerated merger” is to be prepared by the SNB and the Financial Market Authority.

Do bondholders have to pay?

According to insiders, the bondholders could also be held accountable to rescue CS. The Swiss authorities are considering charging them costs in such a case, two people familiar with the situation told Reuters. However, the European supervisory authorities would have reservations about such a step. They feared this could undermine investor confidence in the European financial sector.

According to Reuters, representatives of both banks have serious reservations about a merger. At UBS, it is all about concerns about jeopardizing the embarked and currently successful course with the takeover of a crisis-ridden bank. In addition, UBS has always rejected any takeover rumors. Only in January did UBS chairman Colm Kelleher miss a “convincing scenario” for such a transaction.

Apparently “massive” pressure from abroad

But the pressure from foreign central banks on the Swiss central bank is said to be very high – the SRF wrote of “massive threats”. The foreign central banks would specifically forbid their banks in the relevant countries to continue doing business with CS if the rescue was unsuccessful. Reuters, citing an insider, reported that “at least four major banks” have decided to cut back on dealings with CS in the event of non-rescue.

London apparently gives the go-ahead for the takeover

As reported by the British broadcaster Sky News, the British banking supervisory authorities are said to have already approved the takeover. The Bank of England has signaled to the other national banks and UBS that it will back the emergency deal the two banking giants were about to announce, Sky News said.

UBS could take over Credit Suisse

In Switzerland, the ailing major bank Credit Suisse could be taken over by UBS, the largest bank in Switzerland. However, UBS is demanding state guarantees for this emergency takeover.

Largest and second largest Swiss bank

A complete merger of the largest Swiss bank with the second largest would create one of the largest systemically important financial institutions in Europe. The balance sheet total of UBS amounted to the equivalent of 1,030 billion euros in 2022, that of CS to the equivalent of around 535 billion euros. In 2022, UBS had made a profit of around seven billion euros. CS, on the other hand, reported a loss equivalent to EUR 7.4 billion.

Cancellation by BlackRock

One is “not involved in plans to take over Credit Suisse in whole or in part, and has no interest in such a takeover,” according to Reuters information from the US investment group BlackRock. The “FT” had previously said that he was also interested in a CS takeover.

“The rumor mill around Credit Suisse is bubbling,” said SRF, referring to the “division scenarios” that have been circulating in various media for days. Should the bank be split up, according to Swiss media reports, Deutsche Bank, for example, but also the Swiss Raiffeisen Group and the Zürcher Kantonalbank, would be interested in certain CS business areas.

Aid pledge and renewed price slump

The SNB only intervened on Thursday night to help the major bank CS. It provided up to 50 billion Swiss francs (50.7 billion euros) for the country’s second largest bank. This intervention temporarily calmed the situation, but was apparently not enough to break the downward spiral.

Not only does the flight of private customers affect Zürcher Bank, but business with other financial institutions is also becoming increasingly difficult. At least four major firms, including Deutsche Bank and Societe Generale, have restricted their dealings with CS or its securities, according to five people with direct knowledge of the matter.

Despite the comprehensive SNB support, the CS price collapsed again on Friday. The market value of the bank had already suffered a severe setback this week after the bankruptcy of two banks in the USA fueled fears of contagion and many banks subsequently collapsed.

Remembering the Swissair debacle

Now the future of Credit Suisse is likely to be decided over the current weekend, according to the “Neue Zürcher Zeitung” (“NZZ”), which also referred to the bank’s workforce in this context. In the Zurich area alone, the fate of the bank is linked to the fate of more than 10,000 well-paid jobs. “CS has existed for 167 years and was the pride of Zurich,” finally reminded the industry portal Inside Paradeplatz, where at the same time a “Grounding 2.0” is feared for CS.

Many other Swiss media also recently recalled the Swissair bankruptcy in 2001, which, according to the financial portal Cash, “is still described as a national disgrace”. Cash also sees parallels to CS today in another “debacle in Swiss economic history” – specifically UBS, which got into a tailspin in the wake of the financial crisis in 2008 and was subsequently rescued with a 60 billion aid package.

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