Time is money in operations to save Credit Suisse. As the Financial Times reported this Saturday, the Swiss government is ready to allow UBS to break some rules so that the merger between the country’s two largest companies can become a reality as soon as possible. Specifically, the executive would take contingency action to allow UBS to ignore its obligation to give shareholders a six-week hearing period.
The markets have demonstrated their ability over the past week to cause the stock markets of distrusted companies to collapse. And Credit Suisse is in this situation right now: as might be expected, amidst the sea of negative news, the outflow of deposits from the bank is accentuating, a difficult wheel to stop when it starts turning. According to the FT, deposit outflows exceeded 10 billion euros a day at the end of last week.
Given this massive pullback, the search for a deal ahead of Monday’s market opening becomes more important. A failure of the same would probably trigger a new stock market crash at what is already a sensitive moment for the financial system due to the fragility of the US regional banks. This Saturday the sessions were repeated. The Swiss Federal Council held an emergency meeting in Bern, the country’s capital, which local press reports said its participants declined to comment on.
Although their headquarters in Zurich are only a few meters apart, the two largest Swiss lenders are taking opposite paths. While UBS made more than $7 billion in 2022, Credit Suisse lost a similar amount. Its value on the stock market is mixed: 56,000 million versus 7,000 million approximately. And in terms of assets, UBS has 1.1 trillion and Credit Suisse has 574,000 million.
The size of the transaction goes beyond Swiss borders. According to FT, regulators in the US, UK and Switzerland are reviewing the legal structure of the deal. UBS is in a strong position in the deal because it takes the risk of bailing out Credit Suisse and seeks to benefit from the capital rules that apply to the world’s largest banks. And fearing that Credit Suisse is still hiding a corpse in the closet after years of scandals and earnings losses, he demands guarantees for future legal costs. Credit Suisse has already reserved 1,200 million for this in 2022 alone, and according to its calculations, the total amount could double in investigations and unresolved legal cases.
According to Portal agency, UBS wants $6 billion worth of state guarantees and the merger would mean 10,000 layoffs.
UBS has benefited from the Credit Suisse debacle, attracting many of the clients who have fled the bank, which they chose as a natural destination during a period of uncertainty given that it is the country’s largest company, but at the same time as a banking crisis which dem Damaging the reputation of the Swiss financial system and threatening to trigger contagion could also make you a victim.
Discussions are accelerating just two days after the Swiss National Bank agreed to lend up to €50 billion to Credit Suisse. The public bailout was initially interpreted by investors as a powerful lifeline that would allay short-term fears after its main shareholder, the National Bank of Saudi Arabia, threw out a pitcher of cold water by announcing it would stop contributing further funds. Its stocks recouped much of the ground lost in Thursday’s session, the day the liquidity injection was announced, but it wasn’t long before doubts returned and Friday’s renewed collapse in action of 8%, dragging down the major stock indices in Europe and the US made it clear that perceptions of the bank were far from positive.
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