“I can’t imagine the Swiss authorities won’t do anything in the event of a real problem,” Belgian central bank chief and ECB Governing Council member Pierre Wunsch told business newspaper L’Echo.
Wunsch was referring, of course, to a thunderstorm of rumors about the fate of Credit Suisse following an existential week during which the bank’s shares and bonds plunged, and peers reportedly curbed trading, after an errant remark from Saudi National Bank Chairman Ammar Al Khudairy sparked a panic.
Although Swiss regulators were pushing for a shotgun wedding with UBS, Credit Suisse’s larger rival was cautious, to put it politely. By Friday evening, though, the government wasn’t necessarily “asking” anymore. Or at least that’s the impression I got.
According to a scenario described Saturday as “likely,” UBS would absorb Credit Suisse’s wealth and asset management units, but sources told Bloomberg the bank wants government guarantees around costs associated with potential litigation and losses. Separately, the FT said a deal could be announced as soon as Saturday.
A merger would create a behemoth which, on some interpretations anyway, means a deal would actually increase latent systemic risk, even as it’d cut the tail risk of a disorderly failure at Credit Suisse, an event with the potential to trigger an outright global financial crisis, notwithstanding what I’m sure are contingency plans at every major bank.
In their reporting, the FT, citing a pair of sources, said deposit outflows from Credit Suisse ran at nearly $11 billion per day last week.
The bank tapped the SNB for $54 billion in liquidity, and although Finma joined the central bank in expressing confidence, both reportedly saw a tie-up with UBS as “the only option” to restore confidence by the end of the week. The Wall Street Journal said the persistence of deposit outflows despite the SNB liquidity backstop compelled the central bank to facilitate talks with UBS.
In addition to the indemnity demands flagged by Bloomberg, UBS is apparently keen to avoid being subjected immediately to any new capital requirements associated with a deal. Instead, the bank wants any such regulatory demands implemented in stages.
Other options were on the table, but the Swiss wanted a domestic solution. The Fed and the BoE were being consulted on the prospective deal and also on UBS’s demands, according to various media reports.
I know nothing about Swiss politics or their internal banking regulations, but can the Swiss government give UBS an offer they can’t refuse?
I think so, yes. I mean, with the caveat that I obviously can’t speak for the Swiss government.
Swiss ought to form a bad bank for credit suisse. Spin out the domestic bank, put the rest into bad bank and sell, spin off or wind it down. UBS made a cheap bid, they were not really interested in getting involved.
After the events of Sunday morning (in the States), UBS looks like they really didn’t want to get involved. “If A, B, C, and D happen we will buy at an 85% discount.”
This implies to me that 1) Either UBS doesn’t know enough, at the moment, to make a better offer, or 2) they do know enough of the CS situation and, even with some pressure from the Swiss government, went real cheap with some caveats because it must be a debacle.