To describe the shotgun wedding between UBS and Credit Suisse as “complex” would be to materially understate the case.
UBS’s initial offer for its smaller rival — just $1 billion, or CHF0.25 — was understandably low given the extraordinary risks involved, but Credit Suisse was forgiven for any reluctance to acquiesce. After all, UBS’s begrudging bid represented a huge discount to Friday’s close. The final price, more than $3 billion, was a little better.
The compressed timeframe — just 48 hours — made the entire ordeal seem almost farcically haphazard, something executives doubtlessly communicated behind the scenes.
In addition to the myriad challenges that’d normally accompany a merger between two systemically important financial institutions, Credit Suisse’s ongoing restructuring effort complicated matters immensely. The CS First Boston spinoff was in limbo, for example, and the Saudis have a huge stake in the bank.
Little wonder UBS reportedly demanded various sorts of indemnity and a phased-in approach to any new regulatory demands, including those associated with capital requirements.
Suffice to say the marriage wasn’t guaranteed to work, which is why the Swiss government’s fallback plan was nationalization. According to sources who spoke to Bloomberg, Swiss authorities were pondering a full government takeover of Credit Suisse or a large equity stake in the event the UBS idea fell through.
UBS asked (and ultimately received) Swiss government assurances around liability for potential legal expenses and prospective losses associated with the deal beyond CHF5 billion. Given that, and considering how far Credit Suisse’s shares had already fallen, I suppose it made sense that some government officials thought about just buying it.
It’s hard to say how a nationalization of a SIFI would’ve gone over in terms of fragile broad market sentiment, but one thing was assured: Given the amount of financial media coverage devoted to the weekend discussions, no deal by the time trading was underway in Asia was a risky gamble.
