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The decline of Credit Suisse and its takeover by federal government-backed UBS has been making waves for days. In the eye of the storm: Finance Minister Karin Keller-Sutter (59), who presented her federal bailout proposal to the bewildered public last Sunday.
In a radio interview with SRF, Keller-Sutter now offers some insight into the events surrounding this rescue. First of all, he states that without the emergency rescue, CS would “have gone bankrupt by Monday morning”, which would have led to major upheavals in financial centers in Switzerland and abroad. In the end, he may realize that the rescue measure has caused discontent. But culprits are quickly identified: “Unfortunately, you can’t fix management mistakes,” says Keller-Sutter. Almost nothing can be done about the accumulation of mistakes, scandals and loss of trust.
The federal government, together with the Swiss National Bank (SNB) and the Financial Market Authority (Finma), has been monitoring the situation for “months” and has already discussed scenarios. He criticizes that the CS has put the country and the Federal Council in an “impossible situation”. On the other hand, there has been no pressure attempt from the USA or England, the Minister of Finance contradicts the news in the press from abroad. Phone calls with the finance ministers there were aimed at creating “goodwill” and consensus for the solution that was ultimately offered.
“Big sums of billions already withdrawn”
The Federal Council Member states that CHF 209 billion will be paid not in cash but as a risk guarantee. Keller-Sutter does not know in detail whether CS received the CHF 50 billion liquidity injection previously issued by SNB. But she knows that “billions of huge sums were withdrawn last weekend,” she says. On the one hand, because CS customers continue to withdraw, and on the other hand, because other banks insist on guarantees for transactions with CS. It can therefore be assumed that more than 50 billion Swiss francs have already flowed into CS, Keller-Sutter says.
But that’s tiny compared to the cost to Switzerland of CS’ bankruptcy: Keller-Sutter estimates that CS’s damage to Switzerland from an “irregular bankruptcy” is around 740 billion francs.
Seen this way, an alternative solution such as the nationalization of the CS was not a problem, especially since all risk would be “taxpayer’s”. The federal government was not responsible for this. In the end, the solution with UBS turned out to be the best possible solution. It seems that Keller-Sutter was unaware of an alternative 5 billion franc offer from Saudi Arabia for the takeover of CS, and another offer from Blackrock on Saturday was withdrawn the same day.
The federal government is also negotiating profit-sharing
UBS has set aside CHF 5 billion against possible losses in toxic CS securities, derivative positions that UBS does not want to take over, and the federal government also offers an additional CHF 9 billion guarantee. What happens if losses are not adequately covered? According to Keller-Sutter, who will have to bear the additional losses and to what extent has not yet been negotiated. An increase in the guarantee amount may need to go to Parliament. In turn, according to Keller-Sutter, the federal government would also negotiate profit sharing if the securities were sold profitably.
As a result, the Federal Council Member confirms that the state guarantee can go beyond the agreed 9 billion. It is “not true” that the additional amount will be borne equally by the federal government and UBS, as has been said.
Also sensational is Keller-Sutter’s statement on 17 billion francs of AT1 bonds, whose owners have been effectively nationalized: “The fine article says that money can be wiped when it comes to government support – this has been a case.” Since the CS lawsuit is not a bankruptcy, neither does the usual practice of shareholders being liable first and only then by bonds. Also, 17 billion Swiss francs is a nominal value, “the effective value was 5 billion recently,” says Keller-Sutter.
UBS bonuses likely to remain
Since the Federal Council gives a guarantee to UBS, limiting bonuses in UBS may be considered – as in CS. However, the Federal Council has not yet dealt with this. It’s unclear whether this is what UBS wants, especially since UBS is “part of the solution”. Keller-Sutter puts it this way: “You have to be careful not to overdo it.”
CS separation is undesirable
Keller-Sutter’s own party, the FDP, demands that CS remain an independent bank, i.e. leave UBS again. But Keller-Sutter warns: “This would be a significant change in the deal with UBS.” Priority to ensure CS is taken over by UBS. It’s about taking the “correct order” into account when saving CS. Too many terms and demands can jeopardize the deal.
Keller-Sutter points out that the competition commission will review the deal later. The Bundestag complained: “Relax”.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
