Banking professor: “CS bondholders and UBS shareholders are winners”
Published: Sunday, Nov 5th 2023, 11:00
Updated At: Monday, Nov 6th 2023, 00:53
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Swiss banking professor and wealth advisor Pascal Böni estimates the potential financing costs to the Swiss government for the emergency merger of CS and UBS at six to seven billion francs. CS bondholders and UBS shareholders would be the "clear winners" of the emergency merger.
In an interview with the "SonntagsZeitung", Böni, who teaches at the universities of Tilburg NL and Basel, says that he has analyzed abnormal stock market price movements and asset transfers between the shareholders and bondholders of the two banks.
The government-imposed CHF 16 billion write-down of the so-called AT1 bonds issued by CS did indeed take place. Their holders lost a lot of money, but mainly before March 19, 2023. The holders of these securities effectively "only" lost around CHF 3.5 billion. In addition, there was a loss of around one billion francs for CS shareholders, who were denied any say in the matter.
On the other hand, ordinary CS bondholders, i.e. non-AT1 bondholders, were the main winners. After the state-ordered takeover, these securities suddenly became safe again, "which resulted in an increase in value of around 35 percent or 20 billion francs." UBS shareholders made a takeover-related price gain of around CHF 4.7 billion.
Together with a second author, Böni wrote a 44-page report on the emergency rescue of the CS, as can be seen on the Tilburg University website.
Demand for more equity
The Confederation's financing costs can be estimated at six to seven billion francs based on the Confederation's credit risk premiums, Böni continued in the interview. These premiums rose immediately after the rescue of Credit Suisse.
According to Böni, the risks for taxpayers could become much greater as a result of the so-called "too big to fail" guarantees. If the Swiss Confederation ever had to rescue UBS, liquidity guarantees of 700 billion would be necessary instead of 200 billion as in the Credit Suisse rescue.
This corresponds to the size of Switzerland's annual economic output. Böni therefore argues that the equity ratio of the merged UBS should be significantly increased - doubled, for example. According to Böni, the Swiss Financial Market Supervisory Authority (FINMA) should also apply more market-based, forward-looking indicators to banking supervision.
He welcomed the fact that a parliamentary commission of inquiry is investigating the emergency merger.
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