This Monday the financial world has dawned with a new European colossus that brings together the two main Swiss banks. It is the result of the acquisition by UBS, the largest and most healthy, of the second entity, a Credit Suisse in dire straits, which threatened to unleash a financial storm of the first order This was announced yesterday by the president of UBS, Colm Kelleher, during the press conference in which the acquisition for 3.250 million dollars was announced.
The announcement was made late yesterday, with the hope that at the opening of the Tokyo market, the earliest of financial markets, the stability lost during the past week would be recovered and thus curb the risk of systemic contagion that had triggered the capital flight from Credit Suisse last week.
“The situation is known, Credit Suisse is one of the 30 systemic banks worldwide. It is one of the two main banks in the country. It is therefore not only decisive for Switzerland, for our companies, for private customers, for your own employees, but also for the stability of the entire financial system. On Friday we verified that the outflow of funds was unstoppable”. With these words yesterday the president of the Swiss Confederation, Alain Berset, justified the operation that his government launched last week to save Swiss, European and world banks.
Credit Suisse was already doomed. Efforts throughout the weekend have been focused on preventing it from being a public bailout. “It is not a bailout,” the Swiss authorities and the directors of both banks who appeared before the press insisted over and over again yesterday.
“This is a commercial solution.” The difference is very important as it assumes that the too-big-to-fail bank liquidation rules are not unleashed and therefore Credit Suisse blue-chip equity bonds that may be scattered around are not liquidated. throughout the global financial system.
In exchange, the Swiss government gives him guarantees worth 9 billion Swiss francs to compensate for future losses. This guarantee will be activated in the event of losses in the Credit Suisse portfolio.
In that case UBS would assume the first 5,000 million francs in losses and the federal government the next 9,000 million. In addition, the agreement contemplates that the Swiss National Bank makes available to UBS a liquidity line of 100,000 million francs (currency value practically identical to the euro).
On the other hand, UBS dodges the usual rules of the financial system, whereby the merger of two entities must be approved by the board of directors. “We had to close the operation as soon as possible. There was no more margin”, the bank’s directive was justified last night.
Vincent Kaufmann, chief executive of the Ethos Foundation, which represents Swiss pension funds that own between 3% and 5% of Credit Suisse and UBS, told the Financial Times that the move to bypass shareholder voting on the operation constituted bad corporate governance: “I can’t believe our members and UBS shareholders are happy about this. I had never seen such measures taken; It shows how bad the situation is.”
To calm things down, the authorities assured that the current UBS CEO, Ralph Hamers, and its president, Colm Kelleher, will continue to lead the combined bank. “We will continue to manage all of Credit Suisse’s assets just as we do with our clients,” said Colm Kelleher with a circumspect face.
It was not be for lowerly. As the Financial Times reported throughout the weekend, UBS’s latest intention was to have to buy a bank with the characteristics of its historic rival. Not only because UBS’s plans included growing in the United States and Asia, but because one of Credit Suisse’s strengths is investment banking, in which UBS does not have as much experience.
In fact, the acquisition of that division has been one of the main stumbling blocks in the against-the-clock talks that have been held all weekend between the boards of directors of both banks, the financial regulator and the Swiss government. As was learned yesterday, the US and UK financial authorities were also involved “in fear that the Credit Suisse bankruptcy would unleash a global financial debacle.”
UBS’s reluctance focused from the outset on the doubts generated by Credit Suisse’s balance sheet, due to its financial and management problems in recent years, and the possible losses that may arise, especially in its extensive investment banking business. . In fact, Kelleher himself explained yesterday that UBS will maintain Credit Suisse’s national business, but that the intention is to end the management of the investment bank, although “it is still too early to specify.”
Yesterday morning, UBS made an offer for its rival for 1,000 million dollars, which was not accepted by the board of directors of Credit Suisse. But the clock was ticking against the buyer. Getting a solution before the opening of the Tokyo Stock Exchange was key for the financial system. UBS was the only option. The investment fund BlackRock and the German bank Deutsche Bank had been evaluating their possibilities, but there was no time. Only a Swiss entity could have all the relevant authorizations to close the deal on time.
