The Swiss government meets urgently to save Credit Suisse

If any lesson seems to have remained from the 2008 crisis, it is that in these rescue operations there are two keywords: “simple” and “fast”.

Oliver Thansan
Oliver Thansan
18 March 2023 Saturday 14:24
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The Swiss government meets urgently to save Credit Suisse

If any lesson seems to have remained from the 2008 crisis, it is that in these rescue operations there are two keywords: “simple” and “fast”. This has been how the Swiss authorities have wanted to act to end as soon as possible the crisis that is bleeding the second largest bank in the country, Credit Suisse, financially.

On Saturday afternoon, the Swiss government called an emergency meeting to which, according to the Swiss press, experts from the financial sector joined to define the strategy with which to prop up the bank, which would speed up the times of a normal acquisition process. of entities.

At the time of going to press, the meeting was continuing after an intense day of rumors in which there was speculation about different candidates to rescue the Swiss bank, such as the investment fund Black Rock or the German Deutsche Bank, but none with as much intensity as UBS, the first Swiss bank, according to what the Financial Times had announced on Friday night.

Beyond the fact that the other two candidates had analyzed the assets of Credit Suisse and finally rejected their acquisition, the choice of UBS, the first entity in Switzerland and eternal rival of the affected party, was the best option.

That 2008 is still fresh, when the US authorities spent days looking for buyers for Lehman Brothers and the British government halted the operation with Barclays because the United States did not offer sufficient guarantees.

Now, there is no time to lose. The financial lifeline of 54 million euros launched by the Swiss Central Bank last Wednesday and the support of the country's authorities barely served to buy time. It has provided much-needed leeway for Swiss financial regulator Finma to find a buyer capable of taking over and stem the hemorrhaging of the run Credit Suisse has faced in the past week.

In total, 450 million dollars between March 13 and 15 left its funds in the US and Europe, according to Morningstar Direct, although unidentified sources cited by the Financial Times extended it to 10.8 billion dollars at the end of the week. .

An extreme situation not only for the entity but also for all the once enviable Swiss banks and even for the Swiss state itself. Credit Suisse's current assets are equivalent to 70% of the country's GDP. It is also a risk for the rest of the international financial system, despite the fact that the European Central Bank insisted last Thursday that the exposure of European banks was "minimal".

The chosen one, his compatriot and rival UBS, with a market capitalization of 55,000 million dollars. Acquiring Credit Suisse was far from its roadmap focused on expanding business in the United States and Asia. But his financial capacity and his nationality made him the ideal candidate and the pressure has been "incessant", according to the Swiss press.

But the effort required of him is not easy. According to the Financial Times, the Swiss authorities would have raised a "plan A" that would involve the merger of both banks. Although UBS's doubts about solvency and Credit Suisse put a “Plan B” on the table that would mean breaking up the bank.

The Bloomberg agency pointed yesterday to the investment banking division of Credit Suisse as one of the main concerns of UBS for the losses that this division could arise. In addition, Credit Suisse has been dragging a deep governance crisis for years and has been involved in judicial problems of corruption whose consequences have not been settled.

An acquisition of the entity would mean that UBS would have to assume the debts that may arise in the future derived from the erratic performance of its compatriot in recent years. In addition, it would also bear all the legal risks of the competitor.

These include publicly known cases such as the dispute with former Georgian prime minister Bidzina Ivanishvili or the civil law aftermath of the so-called Mozambique affair, in which Credit Suisse bankers promoted corrupt deals in the South African country through the sale of bonds. In both cases, hundreds of millions of francs are probably at stake for the bank.

Initially, Credit Suisse's balance sheet would contemplate around 1.2 billion euros in legal provisions in 2022 for litigation still unresolved and regulatory investigations could add another 1.2 billion extra.

At the close of this edition, everything indicated that the Swiss authorities would have agreed to cover at least part of these costs to seal the rescue of a bank that is more than 167 years old and the cornerstone of the ancestral Swiss bank.