One year anniversary of the CS “rescue” by UBS
Published: Monday, Mar 11th 2024, 10:20
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It is already one year since the forced takeover of Credit Suisse by UBS, orchestrated by the Federal Council. Those were dramatic days in the Swiss financial center.
Hardly anyone had thought it possible: The industry leader UBS swallowed up its arch-rival CS after the latter's situation had deteriorated drastically. It was the first merger of two global systemically important banks, which also caused a great stir internationally.
On March 19, 2023, a Sunday, the fate of the traditional bank was sealed: The Federal Council, the Swiss National Bank (SNB), the Financial Market Supervisory Authority Finma and the two banks jointly announced the "rescue" plan that evening: UBS would take over its smaller competitor for an equivalent value of only around CHF 3 billion at the time - paid for in UBS shares.
Repeated scandals and losses
The announcement was preceded by difficult weeks at Credit Suisse and then intensive negotiations over the weekend. But the problems at CS, which increasingly undermined confidence in the bank, were manifold and dated back many years.
The beginning of the end was marked by two major financial scandals in 2021. High-risk transactions with the US hedge fund Archegos and the supply chain financier Greensill Capital resulted in major losses and led to the former traditional bank losing the trust of investors and later customers.
This loss of confidence manifested itself in a rapidly falling share price. By the end of 2022, it had fallen below 3 francs, after trading at well over 10 francs at the beginning of 2021 and over 25 francs in 2015. However, the best times for the shares were already a long way back: in 2007, before the major financial crisis, the shares were trading at a high of over 95 francs.
Trust squandered
The turnaround after Archegos and Greensill was to be achieved through restructuring with new management and a new investor. The plans were announced by the new management under CEO Ulrich Körner and Chairman of the Board of Directors Axel Lehmann in October 2022: Saudi National Bank was brought on board, the loss-making investment bank was to be downsized and thousands of jobs were to be cut.
Ultimately, however, none of this helped: customers fled in droves. In the fourth quarter of 2022 alone, around CHF 110 billion or around 8 percent of assets under management were withdrawn.
A large proportion of the withdrawals took place in the first two weeks of October following rumors on social media about the difficulties of a major bank. Although no name was mentioned, many investors automatically associated this with Credit Suisse.
US banking crisis at an inopportune time
The crisis then escalated dramatically in mid-March 2023. Statements by the new major shareholder from Saudi Arabia startled investors. In an interview, the President of the Saudi bank, Ammar al-Khudairy, categorically ruled out any further financial support for CS. The share price fell by over 30 percent at times that day to a new all-time low of 1.55 francs.
Credit Suisse's misfortune was also that a regional banking crisis in the USA, triggered by the rise in interest rates, exacerbated the problems at the same time. In the same week, the American Silicon Valley Bank collapsed and other small US banks followed suit. It was a shock for the financial markets, as a chain reaction was feared, with CS, which was already in crisis, being the weakest link.
That week saw another massive outflow of money from Credit Suisse. Over 10 billion Swiss francs are said to have flowed out every day that week. Even the SNB's liquidity assistance of CHF 50 billion on March 16 did not help.
"International financial crisis prevented"
It was already too late, and in the end those responsible saw only one way out: UBS had to take over the faltering CS. "Credit Suisse would not have survived Monday," said Finance Minister Karin Keller-Sutter on that historic Sunday evening.
The main reason for the takeover and not the liquidation of the bank was the time pressure. The fear of collateral damage for other banks such as UBS was too great.
The costs for the economy would have been "huge", according to the Federal Councillor. The aim was to prevent an international financial crisis.
©Keystone/SDA
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