The Swiss Government meets in an emergency 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 key words: "simple" and "fast".

Oliver Thansan
Oliver Thansan
19 March 2023 Sunday 02:00
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The Swiss Government meets in an emergency 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 key words: "simple" and "fast". This is how the Swiss authorities have wanted to act to cut off as soon as possible the crisis that is bleeding the country's second largest bank, Credit Suisse.

On Saturday evening, the Swiss Government called an emergency meeting to which, according to the Swiss press, experts from the financial sector were added to define the strategy with which to shore up the bank. 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, as the Financial Times had advanced on Friday night.

Apart from the fact that the other two candidates had analyzed Credit Suisse's assets and ultimately rejected its acquisition, the choice of UBS, Switzerland's leading institution and eternal rival of the affected party, was the best option.

It is still fresh in 2008 when the United States authorities spent days looking for buyers for Lehman Brothers and the British Government stopped the operation with Barclays because the United States did not offer enough guarantees.

There is no time to waste now. 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 the necessary leeway for Swiss financial regulator Finma to find a buyer capable of taking control and stemming the hemorrhaging of withdrawals that Credit Suisse has faced in the past week. In total, $450 million between March 13 and 15 came out of its US and European funds, according to Morningstar Direc, although unidentified sources cited by the Financial Times put that at $10.8 billion at the end of the week

A borderline situation not only for the entity but also for Swiss banking, enviable in another era, 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 banking was "minimal".

The chosen one is his compatriot and rival UBS, with a market capitalization of 55,000 million dollars. Acquiring Credit Suisse was far from his 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 "relentless", according to the Swiss press.

It should also be remembered that UBS in turn was already rescued in 2008. An effort by the Swiss State that will certainly have been on the negotiation table.

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

Yesterday, the Bloomberg agency pointed to the investment banking division of Credit Suisse as one of the main concerns of UBS for the losses that this division could face. In addition, Credit Suisse has been in a deep governance crisis for years and has been involved in judicial corruption problems whose consequences have not been resolved. An acquisition of the entity would mean that UBS would have to assume the debts that may arise in the future arising 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 dealings in the South African country by sale of bonds In both cases, hundreds of millions of francs are probably at stake for the bank. In principle, Credit Suisse's balance sheet would forecast around 1.2 billion euros in legal provisions in 2022 for still-unsettled litigation, and regulatory investigations could add an extra 1.2 billion euros.

At the close of this edition, everything indicated that the Swiss authorities would have offered to cover these costs to seal the rescue of a bank with more than 167 years and a cornerstone of ancestral Swiss banking.