UBS offers to buy Credit Suisse for up to $1B(ft.com)
ft.com
UBS offers to buy Credit Suisse for up to $1B
https://www.ft.com/content/ec4be743-052a-4381-a923-c2fbd7ea9cfd
131 comments
"Credit Suisse has spent the last decade finding astonishing new ways to lose money and embarrass itself (...) It's failings have included a criminal conviction for allowing drug dealers to launder money in Bulgaria, entanglement in a Mozambique corruption case, a spying scandal involving a former employee and an executive and a massive leak of client data to the media, (...) not to mention its losses on the Archegos and Greensill scandals."
Matt Levine is a treasure.
Matt Levine is a treasure.
The spying scandal didn't involve "an executive" and "a former employee", it involved the CEO and several senior executives. Tidjane Thiam resigned in 2020 over it whilst denying wrongdoing, and was CEO at the time a lot of these problems built up.
The "former employee" in that scandal (Iqbal Khan) is now at UBS.
In the US the government can step in and force you to take that offer. Specifically, they can tell you if you don't accept it the FDIC can take over your bank and auction it off for maybe the snickers bar.
Is there such a mechanism in Switzerland? Because at "a snickers bar", a lot of people wouldn't sell out even though it's better for all their depositors. They may be tempted to roll the dice and hope for a giant win. After all, they get way more upside and it's not their money (primarily) they are risking
Is there such a mechanism in Switzerland? Because at "a snickers bar", a lot of people wouldn't sell out even though it's better for all their depositors. They may be tempted to roll the dice and hope for a giant win. After all, they get way more upside and it's not their money (primarily) they are risking
In practical terms no - UBS is by far the largest Swiss bank followed at some distance now by Credit Suisse, and together they are on quick look larger by asset size then all other Swiss banks _combined_.
Whether or not a company is bankrupt is not and should not be decided by the shareholders. If it was decided by them they would obviously never declare it bankrupt.
The mechanism for "getting paid with a snickers bar" is just a streamlined but still fair version of a restructuring bankruptcy. In a bankruptcy all of the equity gets wiped out and the shareholders no longer have a say in the matters. Morally because they failed to run the company, but also because they positioned themselves to take the greatest gains, and thus should be exposed to absorb the greatest losses. It's not so much specific to any country as it is to the very idea of capitalism / being a shareholder.
The fact that a banking regulator gets involved and orders this or that does not necessarily change the fundamental way in which things would happen to another non-bank corporation. Equity would get wiped out, sometimes together with the least secured credit - see "fulcrum security".
The mechanism for "getting paid with a snickers bar" is just a streamlined but still fair version of a restructuring bankruptcy. In a bankruptcy all of the equity gets wiped out and the shareholders no longer have a say in the matters. Morally because they failed to run the company, but also because they positioned themselves to take the greatest gains, and thus should be exposed to absorb the greatest losses. It's not so much specific to any country as it is to the very idea of capitalism / being a shareholder.
The fact that a banking regulator gets involved and orders this or that does not necessarily change the fundamental way in which things would happen to another non-bank corporation. Equity would get wiped out, sometimes together with the least secured credit - see "fulcrum security".
Current market cap $7B, one year ago $30B. The largest shareholder who owns 10% of the company was asked if he was going to put up more cash last week and he categorically said he won't. This arguably started/accelerated the fall, he probably regrets that now.
>The largest shareholder who owns 10% of the company was asked if he was going to put up more cash last week and he categorically said he won't. This arguably started/accelerated the fall, he probably regrets that now.
All-In Podcast said that a plausible reason for the Saudi Arabian investor capping at 9.9% was due to government regulations. Deep link : https://www.youtube.com/watch?v=yYwfiqYocc0&t=11m20s
That said, I have no idea if the government rules about owning more than 10% is just a minor inconvenience or A Really Big Deal.
All-In Podcast said that a plausible reason for the Saudi Arabian investor capping at 9.9% was due to government regulations. Deep link : https://www.youtube.com/watch?v=yYwfiqYocc0&t=11m20s
That said, I have no idea if the government rules about owning more than 10% is just a minor inconvenience or A Really Big Deal.
The investor in question brought that up right after saying "absolutely not." The problem is: he said "absolutely not."
Headline just updated to say a deal was done at 0.50 (a bit over $2B)!
The official number from the press conference is 3 billion Swiss Franks (CHF).
To be frank even that very low buying price together with the 6 billion CHF that UBS asked from the Swiss government as a warranty is not enough to cover for the almost unlimited amount of money they may lose in Credit Suisse related US class action and other liability related lawsuits due recent and not so recent events.
That's likely why the offer is so low. The $1B doesn't go toward covering any potential losses. The $1B would go to Credit Suisse shareholders and then UBS would own the company and be on the hook for the liabilities. To put it another way, the deal's complete price is $1B in cash plus whatever the liabilities are.
Why would UBS take on potentially unlimited amount of liability? That doesn't make sense at all.
Conventional wosdom would say that liabilities were already priced in
Latest news indicates that CS has rejected the deal.
At this point if there is no deal by the end of the day the government is considering taking parts or the entire bank[1]. Although this would be a huge hit for the tax payer, at this point I think it would be much better. The Swiss government can also push back harder on any future liabilities that come at the bank from old dealings. By nationalizing the bank they will effectively prevent a global financial crisis.
If UBS acquires this bank a lot of jobs are redundant and there is effectively only one large bank left.
The Bundesrat[2] is expected give a media conference later today.
[1] https://www.bloomberg.com/news/articles/2023-03-19/switzerla...
[2] https://www.youtube.com/@gov-ch/streams
At this point if there is no deal by the end of the day the government is considering taking parts or the entire bank[1]. Although this would be a huge hit for the tax payer, at this point I think it would be much better. The Swiss government can also push back harder on any future liabilities that come at the bank from old dealings. By nationalizing the bank they will effectively prevent a global financial crisis.
If UBS acquires this bank a lot of jobs are redundant and there is effectively only one large bank left.
The Bundesrat[2] is expected give a media conference later today.
[1] https://www.bloomberg.com/news/articles/2023-03-19/switzerla...
[2] https://www.youtube.com/@gov-ch/streams
[deleted]
I suspect the problem is they don't actually know what they are buying. Not every financial institution has reporting systems that are, how should we say it, modern.
When I worked with CS they had a mountain of corporate entities. Just dozens of businesses that were pretty hard to do paperwork for, and even as a going concern it was confusing. Now with bankruptcy eminent, it is not any easier to know what is where.
I get this feeling they actually have no idea what CS has in terms of assets and liabilities. This is why UBS has that clause about the CDS, if they buy the bag of junk there could be some bomb inside it.
When I worked with CS they had a mountain of corporate entities. Just dozens of businesses that were pretty hard to do paperwork for, and even as a going concern it was confusing. Now with bankruptcy eminent, it is not any easier to know what is where.
I get this feeling they actually have no idea what CS has in terms of assets and liabilities. This is why UBS has that clause about the CDS, if they buy the bag of junk there could be some bomb inside it.
I remember a couple of decades ago when my brother was working for JPMC. At the time they were an amalgamation of 13 or so large regional banks. They maintained the systems and the departments (like IT, etc) for all of the separate banks and had long-term plans to unify everything that never made any progress. Each banks' departments realized that if they did the work laid out for them that the axe was to follow so they all delayed and delayed and delayed and fought with each other for relevance.
My brother was brought in to work exclusively on backups and to wrangle 13 different IT teams doing backups into compliance. They made sure that he didn't get his laptop to start doing his job for a full six months. Every department's backups failed every day. Every department had excuses for not being able to do the remediation work. After a couple of years of collecting a paycheck and making no progress he left and used the money to start his own business.
I still wonder how much progress they have made to this day.
My brother was brought in to work exclusively on backups and to wrangle 13 different IT teams doing backups into compliance. They made sure that he didn't get his laptop to start doing his job for a full six months. Every department's backups failed every day. Every department had excuses for not being able to do the remediation work. After a couple of years of collecting a paycheck and making no progress he left and used the money to start his own business.
I still wonder how much progress they have made to this day.
UBS is basically buying an abandoned storage locker at this stage. At this point Credit Suisse is mostly junk and may be worthless but UBS might be able to find a few things of value in there to make it worth their time and money.
Sad to see such a long-standing global company end like this. Credit Suisse suffered from years of terrible leadership and bad decisions so I suppose this is preferable to just an outright collapse.
Sad to see such a long-standing global company end like this. Credit Suisse suffered from years of terrible leadership and bad decisions so I suppose this is preferable to just an outright collapse.
$1b for Credit Suisse feels like they already did collapse and UBS are making an offer for the rubble.
It's buying an abandoned storage locker with potentially leaking chemical waste that has could have been poisoning the ground water and killing people the next town over for decades.
"Swiss authorities poised to change the country’s laws to bypass a shareholder vote"
This part of the article is horrifying.
This part of the article is horrifying.
Has to mean CS is facing eminent collapse right? Or maybe they’re just worried shareholders would reject in hope of a miracle since they dont suffer in the downside.
As a Swiss citizen, I wholeheartedly agree.
Credit Suisse says no . beggars can be choosers
This seems so out of character for Switzerland. Would anyone from Switzerland care to comment?
Switzerland has bank insurance, but it's not government-backed. It's funded by the banks as a group. The limit is 100,000 CHF (about US$108,000) per customer. Swiss banks are not, in general, backed up by the Swiss government in the way that the FDIC and Fed back up US banks. It's surprising to see a "too big to fail" approach from Switzerland.
But if Switzerland let Credit Suisse go under, nobody outside Switzerland would put money in Swiss banks any more.
Switzerland has bank insurance, but it's not government-backed. It's funded by the banks as a group. The limit is 100,000 CHF (about US$108,000) per customer. Swiss banks are not, in general, backed up by the Swiss government in the way that the FDIC and Fed back up US banks. It's surprising to see a "too big to fail" approach from Switzerland.
But if Switzerland let Credit Suisse go under, nobody outside Switzerland would put money in Swiss banks any more.
> if Switzerland let Credit Suisse go under, nobody outside Switzerland would put money in Swiss banks any more
Switzerland’s private banks are fine. Problem is CS does a lot of plumbing, in Switzerland and internationally.
Switzerland’s private banks are fine. Problem is CS does a lot of plumbing, in Switzerland and internationally.
Let's just have one bank and be done with it.
I just hope the combined entity’s name is a variant of ‘United Swiss Bank Corporation’ not already used by one of its predecessors!
SKA, then my hat[1] will be relevant again. Also the gold signage on the building windows[2] would be correct again (can't be removed because of historic protection).
[1] https://cdn.unitycms.io/images/19gT0AyGKZW9w8bI-N6GQe.jpg
[2] https://www.cash.ch/fp/1335/751/2016/1512/sites/default/file...
[1] https://cdn.unitycms.io/images/19gT0AyGKZW9w8bI-N6GQe.jpg
[2] https://www.cash.ch/fp/1335/751/2016/1512/sites/default/file...
USB-C?
Why is this better than parting up the company in bankruptcy court or receivership? (Or whatever the Swiss analog is).
Because in a bankruptcy stuff stops. Everyday processes get interrupted, and the administrator needs to tally up the balance sheet and sell off what they can to creditors.
It's not just some widget factory, it has connections all over the world but ofc also quite a lot in Switzerland itself. You don't really want one of your two biggest banks to cease trading.
It's not just some widget factory, it has connections all over the world but ofc also quite a lot in Switzerland itself. You don't really want one of your two biggest banks to cease trading.
Not to mention the CDS/Structured credit market frenzy that would ensue.
With this tomorrow will be business-as-usual. Much more than in any other alternative, at least.
This is like a high leverage option trade except there is both unlimited downside and upside.
This marks the first instance in history where the Swiss government has utilized a financial backstop to restore confidence in the international financial market.
Would not the prices of their office buildings/leases be worth this alone, given they will be all in major financial hubs? Do they actually have any liquidity?
You’re just looking at assets. Don’t forget liabilities.
They are not buying the buildings alone. They are buying loads of debt as well - and other assets which may or may not be enough to cover the debts.
And unlike SVB, they are actually one of the players in derivative market. And whatever goes on there. And multipliers in there are big compared to their value as company.
It's funny how this is a common fallacy.
I thought exactly the same when Barings Bank was sold for one British Pound back in 1995 [1].
[1] - https://www.investopedia.com/terms/b/baringsbank.asp
[1] - https://www.investopedia.com/terms/b/baringsbank.asp
Are these banking issues tied to the Russia-Ukraine Conflict?
Will the Swiss start selling arms to the Ukraine to make up for this lost capital?
Will the Swiss start selling arms to the Ukraine to make up for this lost capital?
Only so much as inflation is tied to that. I think it is just that the globally economy was pumped up and now things are forced to slow and free money is not available anymore. Thus things get real. And you can't hide your messes under expanding credit anymore.
No. CS has had serious problems for many years.
Unlikely.
Ooof, i've lost a considerable amount of money lol
Two duplicates of this on the front page of HN, annnddd both are behind paywalls :(
Imagine being Saudi Arabia's National Bank
>Saudi Arabia's National Bank, which acquired 9.88% of Credit Suisse shares last year, said it would not buy more shares on regulatory grounds.
>"We cannot because we would go above 10%. It’s a regulatory issue," Saudi National Bank chairman, Ammar Al Khudairy said on the sidelines of a conference in the Saudi capital, Riyadh, on Wednesday.
>Al Khudairy said the value realisation of that investment will unfold as the Swiss bank proves they are doing the turnaround.
>"We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank," he said.
>"I don't think they will need extra money; if you look at their ratios, they're fine. And they operate under a strong regulatory regime in Switzerland and in other countries," he told the Reuters news agency.
His comment will go into the history books for shutting up when your money is on the line.
>Saudi Arabia's National Bank, which acquired 9.88% of Credit Suisse shares last year, said it would not buy more shares on regulatory grounds.
>"We cannot because we would go above 10%. It’s a regulatory issue," Saudi National Bank chairman, Ammar Al Khudairy said on the sidelines of a conference in the Saudi capital, Riyadh, on Wednesday.
>Al Khudairy said the value realisation of that investment will unfold as the Swiss bank proves they are doing the turnaround.
>"We are happy with the plan, the transformation plan that they have put forward. It is a very strong bank," he said.
>"I don't think they will need extra money; if you look at their ratios, they're fine. And they operate under a strong regulatory regime in Switzerland and in other countries," he told the Reuters news agency.
His comment will go into the history books for shutting up when your money is on the line.
>>Saudi Arabia's National Bank, which acquired 9.88% of Credit Suisse shares last year, said it would not buy more shares on regulatory grounds.
>His comment will go into the history books for shutting up when your money is on the line.
He didn't just say "for regulatory reasons." He started with "Absolutely not" and it almost sounds like he added the regulatory part because he realized he screwed up: https://youtu.be/q0So9sqLLfY?t=127
>His comment will go into the history books for shutting up when your money is on the line.
He didn't just say "for regulatory reasons." He started with "Absolutely not" and it almost sounds like he added the regulatory part because he realized he screwed up: https://youtu.be/q0So9sqLLfY?t=127
Looks like they paid about $1.5 billion for that stake last year if anyone's interested! https://www.cnbc.com/2022/10/31/credit-suisse-shares-are-a-s...
What’s the reason of acquiring 9,88% instead of 10%?
https://www.investopedia.com/terms/p/principal-shareholder.a...
Pasting the key takeaways portion:
> - A principal shareholder is a person or entity that owns 10% or more of a company's voting shares.
> - Principal shareholders have significant influence over a company, allowing them to vote on appointing the (CEO) and board of directors.
> - A principal shareholder is different from a majority shareholder, which is a person or entity that owns 50% or more of a company's shares. Principal shareholders are subject to special Securities and Exchange
> - Commission (SEC) filing rules that pertain to insider trading.
Pasting the key takeaways portion:
> - A principal shareholder is a person or entity that owns 10% or more of a company's voting shares.
> - Principal shareholders have significant influence over a company, allowing them to vote on appointing the (CEO) and board of directors.
> - A principal shareholder is different from a majority shareholder, which is a person or entity that owns 50% or more of a company's shares. Principal shareholders are subject to special Securities and Exchange
> - Commission (SEC) filing rules that pertain to insider trading.
Next... Luxembourg AAA Rating...
Credit Suisse needs to get another party to the negotiating table. Time is working against them and UBS has all the leverage. Low-balling makes sense if you’re CS’s only option.
The gov doesnt want foreigners, and UBS is the only bigger bank there. And CS is worthless anyway, the brand is just toxic, so the price will never be higher. They lost last year the same as what UBS made. If they merge and nothing changes, you have 130 000 employees working towards making 0 profit.
If you look at the article, UBS does not want this deal. The Swiss government is effectively forcing them to buy.
So the chances of there being another interested party are ... low.
So the chances of there being another interested party are ... low.
CS would be insane to accept that price
Their CEO can just turn this into a game of chicken, since it is the depositors who are at risk, not him
And if the sale is being forced, why even offer $1 billion? Just threaten jail time and take CS for free
Their CEO can just turn this into a game of chicken, since it is the depositors who are at risk, not him
And if the sale is being forced, why even offer $1 billion? Just threaten jail time and take CS for free
> UBS has offered to buy Credit Suisse for up to $1bn, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalise a deal before Monday.
They don't get to say no
They don't get to say no
I don't understand, can the government change the law as they wish any time they wish? The last I heard, Switzerland is a democracy.
The democratic part is that the government was elected to begin with, and if the voters do not like the changes to any laws, they can vote for someone else in the next election. But yes, the point of a democraticly elected government is that they are empowered to make, change, or eliminate laws as they see fit for the duration of their elected term.
Why would that be undemocratic? That’s how democracy works you elect a government and their job is to make laws.
Switzerland is quite special case, but in general governments can do just about anything as long as they have support of parliaments.
Then CS should force the price to $0 and let their shareholders vent fury on regulators
Once again, it makes sense for CS to let this go scorched-earth
Once again, it makes sense for CS to let this go scorched-earth
What’s the upside? CS managers get a reputation for being emotional toddlers who can’t be trusted near anyone’s money ever again?
Intentionally producing a worse outcome for your own shareholders in the hopes you can blame someone else just doesn’t seem like a very sane thing to do.
Intentionally producing a worse outcome for your own shareholders in the hopes you can blame someone else just doesn’t seem like a very sane thing to do.
I think you cannot say that in public (jail time)
CS is already worthless, there s no upside for UBS at all, except to keep their swiss charter because the gov threaten them...
"UBS has also insisted on a material adverse change that voids the deal if its credit default spreads jump by 100 basis points or more, they added."
Sounds like they want a way out of this deal.
Sounds like they want a way out of this deal.
And now Credit Suisse is pushing back on the deal. Is anyone else reminiscing?
https://www.nytimes.com/2008/03/24/business/24deal-web.html
https://www.nytimes.com/2008/03/24/business/24deal-web.html
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That's not much given recent volatility in their spreads, a further bargaining tool I guess
Worth noting that UBS itself was propped up by the swiss government during the great financial crisis (tho I think the government/central bank ended up profiting from the deal).
Ofc they profitted, it was a loan, like in the US, so with interest. I like how american hairdressers who barely pay a dime of tax like to vehemently point the finger at the mean banks "they" "bailed out", but no tax money has been lost in these loans...
Tax funded bail outs are never at fair market value, if they were the market would have done the bail out. Giving a risky venture low interest loans is the same as giving them free money.
The hairdressers are complaining the tax payer had to front them in the first place.
The Fed's got our back, lets try crypto and see how that goes.
Just have to repeal that pesky Dodd-Frank thing, and it's back to the fuckery.
The Fed's got our back, lets try crypto and see how that goes.
Just have to repeal that pesky Dodd-Frank thing, and it's back to the fuckery.
Credit Suisse is such an embarrassment, the Swiss government should buy it just to take the "Suisse" out of its name.
For perspective, Credit Suisse market cap is (on paper at least) around $8 bln.
For even more relevant perspective, the Market Cap one year ago was 30bln.
Given that they went from 30 to 8 in one year, is it suprising that they go from 8 to 1 in one month?
Yes! Huge deviations from the current market cap are always surprising! If the market expected them to go to $1B in a month, the current market cap would not be $8B.
Well, it depends how you ask the question right? The statements:
1. The market considers that in the future the company will be worth (on avg) $8B.
2. There is a 20% chance the company is (effectively) dead in a month.
- these statements are not necessarily in contradiction (although going one level deeper, I personally think catastrophic risk is often not fully reflected in asset prices)
1. The market considers that in the future the company will be worth (on avg) $8B.
2. There is a 20% chance the company is (effectively) dead in a month.
- these statements are not necessarily in contradiction (although going one level deeper, I personally think catastrophic risk is often not fully reflected in asset prices)
Doesn't matter what the market expects what matters are the facts. Again the market expected one year ago that CS would be worth 30B. they were wrong. the downfall in unpredictable.
> Doesn't matter what the market expects what matters are the facts.
Market expectations are based on facts.
> the downfall in unpredictable.
Yeah! Unpredictable is a synonym for surprising. I think you're agreeing with me? It would be surprising if CS stock went from $8B to $1B overnight.
Market expectations are based on facts.
> the downfall in unpredictable.
Yeah! Unpredictable is a synonym for surprising. I think you're agreeing with me? It would be surprising if CS stock went from $8B to $1B overnight.
No it would not be surpriseg at all at this point. it would be surprising if it was stable for years at 8B and went 1B overnight but for a stock that has lost 3x more than it's current market cap in the last year it's not surprising at all to lose another 1x.
Market expectetions are not based on facts, that is the lie that keeps catching the people with their pants down. Market Expectations are a Bet of Risk/Award analysis based on limited data (thus at best limited at worst even distorted or ommited facts). There are always people willing to bet on the x3 or even x10 as long as the risk/award analysis is attractive. It is by no means a statement that you will win x3 or x10.
Cryptocurrencies are the perfect illustration of this effect but even in the regulated market see for example the illustration of the Gamestop: https://www.theverge.com/22253363/wall-street-bets-verge-sto... it's perfect to show how the market expectations are bullshit and not facts.
Market expectetions are not based on facts, that is the lie that keeps catching the people with their pants down. Market Expectations are a Bet of Risk/Award analysis based on limited data (thus at best limited at worst even distorted or ommited facts). There are always people willing to bet on the x3 or even x10 as long as the risk/award analysis is attractive. It is by no means a statement that you will win x3 or x10.
Cryptocurrencies are the perfect illustration of this effect but even in the regulated market see for example the illustration of the Gamestop: https://www.theverge.com/22253363/wall-street-bets-verge-sto... it's perfect to show how the market expectations are bullshit and not facts.
If it was unsurprising, you should have bought some very cheap out of the money puts.
Unsurprising doesn't mean predictable. It's often easy to say that something will go down (or up) in value at some point, but very difficult to say at which point.
> Unsurprising doesn't mean predictable.
I mean, I just disagree with you there. Outcomes you did not predict are surprising.
I mean, I just disagree with you there. Outcomes you did not predict are surprising.
Imagine you're repeatedly flipping fair coin. Is it surprising when it comes up heads? How about a tails? Can you predict the next flip?
Yes, it's surprising each time.
[deleted]
We get to find out Monday! Exciting!
Is or was, i.e., is there a market today beyond UBS' offer?
I would be surprised, that almost certainly would involve nationalisation, or the SNB approving the sale of Switzerland’s second largest bank to a foreign buyer. Though I could see it being split up and maybe the IB going abroad.
That number is based on its Friday closing price of total shares outstanding times the market price of a common share.
Such offer by itself would probably be enough to drive the share price given where things seems to be headed.
Such offer by itself would probably be enough to drive the share price given where things seems to be headed.
OK, now I feel very safe. Thank you UBS you stepped in with you professional halo effect. Thanks!!! Appreciated!!! I feel very super extra safe now!!!!
What are you saying exactly? That UBS should just refuse ?
No, he's saying that this is an alarming situation
Definitely a better deal than Twitter.
1/7 of the Friday closing price - this is heading into the Matt Levine "we will buy your bank, make sure that all your customers are made whole, and give you a Snickers bar in exchange for 100% of the equity" territory