Credit Suisse Rescue Drains Public Funds, Unsettles Investors

In the wake of the collapse of Silicon Valley Bank and Signature Bank, the blowback continues to ripple outward globally with the current death throes of Credit Suisse Bank.  

In an announcement made on Sunday by Swiss regulators FINMA, the world was made aware of the Swiss National Bank and UBS (a multinational investment bank) coming together to acquire Credit Suisse, with the backing of Swiss authorities.  This purchase was done in an effort to save the rival Swiss bank (and financial system) from collapse.  

Swiss National Bank will provide $9 billion to reinforce any losses incurred by UBS in the merger, and the national bank is providing more than $100 billion of liquidity to the merged banks to help facilitate the deal.  Credit Suisse was also already drawing on the Swiss National Bank’s Emergency Liquidity Assistance scheme, which puts the total of public funds being used in this deal to around $260 billion francs (equivalent to a third of Switzerland’s total economic output).

Speaking of the rescue purchase, a leading expert on Swiss financial and economic history had this to say: “The terms of the takeover are very much in UBS’s favour. They were in a strong negotiating position because they didn’t want the deal.”

That last part is of particular significance.  UBS once rivaled Credit Suisse for dominance in the Swiss market. Now the begrudging purchase of the beleaguered Credit Suisse has not so much rid UBS of competition, as much as it has made them obligatory bedfellows. 

However, UBS comes out in an incredibly strong position as the one investment bank left standing; and Credit Suisse has been dealt some incredibly painful blows reminiscent of Germany post World War I.

First, in a litany of blows, the purchase price of Credit Suisse settled at just over $3 billion dollars, which is roughly 60% of what the bank was valued at just ahead of the weekend.  Second, tier 1 investors (a tier noted for its high yield but risky nature) will see their nearly $17 billion francs in investments wiped out, deeply angering this class of investor.  Thirdly, shareholders will take a hit, with their shares being worth .76 after this merger, when they were worth nearly double that ahead of the weekend.


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