Now the fate of Credit Suisse is decided

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These are the darkest hours in Credit Suisse’s 167-year history. Over the weekend, the fate of what was once Switzerland’s most important bank will be decided. A bank that is more intertwined with Swiss economic history than in any other institution. It’s where global companies like Swiss Re or pension insurance Swiss Life emerge. The bank of Alfred Escher (1819–1882), Switzerland’s first investment bank.

The Credit Suisse Group, which can barely stand on its own now, is about to be sold to its toughest competitor. This was discussed yesterday and is still being discussed today. Senior representatives from the National Bank, Finma, CS and UBS sit at the table. The sale of all or part of Credit Suisse is being discussed. As the “Financial Times” reported Friday evening, the National Bank, headed by Thomas Jordan, asked the two banks “to agree on a simple and uncomplicated solution before markets open on Monday.”

SonntagsBlick knows: There will be a decisive meeting with the Federal Council this Sunday. The public will be informed later. The scenario that supervisors want is a merger of two big banks. The British financial newspaper writes that the so-called Plan A aims to stop investors’ confidence in Credit Suisse from collapsing altogether. The collapse of CS as one of the 30 systemically important global banks will trigger a chain reaction that can no longer be controlled.

A possible immediate merger with UBS was already mentioned at the weekend. CHF 50 billion liquidity assistance from the Central Bank, spoken on Wednesday evening, provided only temporary relief. Credit Suisse shares tumbled again on Friday. At the close of the transaction, one share is 1.86 francs – minus eight percent.

low flying bonds

Bond prices also showed that market forces could not be restrained. Bonds, called debt securities in jargon, have barely recovered from their lows despite SNB support. The notorious credit default swaps, which protect against the default of a bond, also remained at a very high level.

One explanation could be that CS had to deposit high-quality assets as collateral in the SNB in ​​order to obtain the required liquidity. This changed the bank’s risk profile – it became riskier. Some bondholders may have noticed this. The massive liquidity increase wasn’t good news for rating agencies either. On Friday, DBRS Morningstar, the world’s fourth largest credit rating agency, downgraded Credit Suisse to “BBB”.

But does merging with UBS make sense? The answer is complex. It seems clear that a complete takeover and integration of Credit Suisse won’t do much and may even endanger UBS.

The biggest digestive issue for UBS will be the investment banking department. According to Kian Abouhossein, one of the world’s best-known observers of the banking industry, the institution will have to be completely liquidated. He estimates the cost to be CHF 30 billion. Who should pay for this? Will there be some kind of bad bank that the federal government will guarantee? Or should the creditors of CS, who injected so-called surety capital for a crisis, pay for it?

Problems can be solved in the domestic market. For antitrust reasons, Credit Suisse’s Swiss unit would have to become independent through an IPO. The Credit Suisse brand may remain. Analysts estimate the value of CS Switzerland at at least ten billion Swiss francs – that is, significantly more than the present value of the group. On Friday evening, the value of the CS group was CHF 7.4 billion.

Ultimately, UBS would retain wealth management, that is, the management of private assets, as well as asset management, which is the management of corporate assets. The big bank could thus expand its position as the largest wealth manager in the world. At least in theory. Because there are reasons wealthy customers go to CS and not UBS. They often look for complex and risky investment opportunities that UBS cannot offer them. Whether these entrepreneurial families, some of whom are very wealthy, will be happy at UBS is an open question.

There are almost no alternatives

What would be the alternatives to a merger or partial merger by UBS? The state would be the last savior, as a large bank from abroad was no longer an option as a buyer due to the urgency. It would have been possible for the National Bank to give more support to CS, as the SNB would not only provide liquidity to CS but also guarantee all customer deposits.

Other variant: You could inject additional capital into the bank. This would have given the ailing bank time to restructure. At the same time, the closure of the investment bank could have been financed by the Swiss corporation’s IPO. The political risks were apparently considered too great. Would Switzerland really be willing to go through another comprehensive state bailout program like UBS’s?

However, it seems that there should be clarity on Sunday evening or Monday morning at the latest before the stock market opens.

The crazy thing about the situation is that despite all the drama, the bank still has good capital and at the same time has sufficient liquidity. Finma confirmed this last week.

If this is indeed the case and there is no reason to doubt it, why has the bank become a toy for speculators who can drive prices down through so-called short selling? So why did so many depositors withdraw their funds?

This is a question that has only one logical explanation: Customers and shareholders have completely lost their trust in the bank and its bosses. No one believed anymore that CEO Ulrich Körner (60) and Chairman Axel Lehmann (64) could lead the bank to success.

decreased credibility

The deterioration of credibility started years ago. But last summer, an unstoppable momentum began. Lehmann and Körner announced back then that everything would be different. They promised radical change and then disappeared for three months to devise a new strategy. Rumors flared. When speculations circulated about the bank’s bankruptcy in October, they tried to take countermeasures. It’s been too late. Customers had already withdrawn 80 billion Swiss francs.

Things got worse when Axel Lehmann shunned exits in December, and thus became the focus of financial market regulator Finma. CS lost all of its credibility when it was forced to delay the publication of its annual report ten days ago following the intervention of the US Securities and Exchange Commission. It finally became a tragic figure this Wednesday: when its share price dropped 30 percent, Credit Suisse announced at a conference in Saudi Arabia that it did not need government assistance.

* Journalist Beat Schmid (54) writes on financial matters for the Sunday newspaper. Tippinpoint.ch is the publisher of the online media.

Source :Blick