The Credit Suisse crisis has triggered a huge uncertainty on the stability of the global economic and financial system. It is one of the largest banks in the world, founded in Zurich in 1856, which has more than 50,480 officers and employees, of which 16,700 work in Switzerland and which has been a pillar of the country’s industrial and economic development.
Late yesterday evening, the government of the Swiss Confederation, at a highly anticipated parliamentary press conference in Bern, together with the Swiss National Bank (SNB) and the Swiss Financial Market Supervisory Authority (FINMA), reported an agreement to which Credit Suisse it had come with its biggest competitor, UBS.
The latter, even bigger than the first and founded in Winthertur in 1862, It currently has 72,597 officials and employees, of which 20,300 in Switzerland. Both banks, given their importance and significance, are among thirty of systemic importance globally.
At this conference, the good news of the acquisition of Credit Suisse by UBS was announced, a fact which, without a doubt, decompressed both the international pressure received by the country and that of the domestic market itself and the persistent decline in the price of the shares of the first, it had shown itself as an undeniable, irreversible and fatal consequence of the loss of confidence in the bank.
The proximity of the opening of the markets imposed the urgency and imminence of a solution at any cost.
The Swiss government, meeting for three days with its highest authorities, had excluded the application of the legislative solution “To big to fail” (too big to fail) issued in 2014, assuming with conviction and decision that with stormy seas it would not have been possible and useless, moreover, the attempt to tow the Titanic to shore.
On the other hand, all other means should be exhausted, without declining broad financial support, as it was a top priority to secure the liquidity injection. For this purpose it was organized guarantee the bank in crisis the sum of fifty billion Swiss francss, later expanded.
Market volatility revealed on Friday that all efforts were falling short: the stock fell, confidence was far from restored and a different, quicker and larger solution was clearly needed to ensure stability.
The solution comes ex post with the proposal and its subsequent refinement, consisting of the incorporation or merger of Credit Suisse by UBS. The Government blesses the agreement and guarantees the general framework between these two private giants.
The deal was result of a tortuous and strategic negotiation, the sequence of which was repeatedly interrupted, starting as usual with an offer deemed negligible consisting in the payment of 0.25 Swiss cents per share, equal to a total of approximately one billion francs, which was strongly rejected, how could it be otherwise, by the main shareholder, the Saudi National Bank.
Furthermore, the possible buyer asked the State to grant him certain guarantees and loans to carry out the operation.
There was also the option of nationalizing the bank, in full or in part, a solution which was soon discarded.
The inevitable and urgent opening of the markets on Monday mornings; the explicit support of the Swiss National Bank, which plays the role of central bank; acceptance as a regulator of FINMA as well as regulators of other countries where the bank is based, and the impressive figure of one hundred billion francs committed as a loan by the state They performed the miracle that the aforementioned acquisition contract saw the light.
The government believes it is the best solution for the restoring trust which has been missing in the financial markets lately. as the President of the Confederation Alain Berset acknowledged in the press conference.
The completion of the agreement responds not only to the praiseworthy objective of protecting the Swiss financial market but also of stabilizing the international financial markets, since the collapse of that single bank would have had incalculable consequences not only for Switzerland but also for other countries.
The essence of the agreement
Credit Suisse shareholders will receive one UBS share for every 22.48 shares held, which corresponds to a value of 0.76 Swiss franc cents per share, which gives a total sum of three billion of the same currency. In addition, in order for the buyer to assume potential losses on certain assets above a certain amount, the government will give UBS nine billion Swiss francs outstanding, presumably making it clear that it would help calm the turbulent waters of the unleashed tsunami.
No less important, and I would say unforgivable, would be to fail to clarify and, where appropriate, repress with all force of law the personal responsibilities in the bank’s crisis that its top management and officials may have supported.
The last word is not said: The market will decide on the positive or negative outcome of the transaction through the share price and the buyer’s CDS (Credit Default Swap or Differentials of Credit Default).
Source: Clarin
