Struggling to rescue a major Swiss bank: “day of fate” for Credit Suisse

Struggling to rescue a major Swiss bank: “day of fate” for Credit Suisse

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

And 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” reports, an “accelerated merger” is to be prepared by the SNB and the Financial Market Authority.

UBS should demand state guarantees

Such a deal can usually be completed in six weeks, reports the SRF. During this period, shareholders of an affected company should be consulted, it is said. At the same time, “FT” and Bloomberg report on demands made by UBS for the takeover. Central to this should be the granting of financial guarantees in the amount of six billion dollars (about 5.6 billion euros) on the part of the federal government.

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 writes 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 reports, citing an insider, 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 the British broadcaster “Sky News” reports, 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.

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, however, 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 is the flight of private customers affecting Zürcher Bank, 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.

Holzmann tried to calm down

Like many other bankers, the head of the Oesterreichische Nationalbank (OeNB), Robert Holzmann, tried to calm down on Saturday. He sees no danger of a banking crisis like in 2008, said the Council member of the European Central Bank (ECB) in the ORF series “Journal zu Gast”. According to Holzmann, the situation at CS is special because it has been suffering from an ongoing restructuring problem for some time.

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 refers 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 reminds 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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