UBS agrees to buy Credit Suisse
bloomberg.com
bloomberg.com
"...The Swiss National Bank SNB and the Swiss Financial Market Supervisory Authority FINMA assert that the problems of certain banks in the USA do not pose a direct risk of contagion for the Swiss financial markets. The strict capital and liquidity requirements applicable to Swiss financial institutions ensure their stability. Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity..."
It's the same with bankers and being solvent.
Switzerland Weighs Full or Partial Credit Suisse Nationalization - https://news.ycombinator.com/item?id=35219363 - March 2023 (97 comments)
UBS offers to buy Credit Suisse for up to $1B - https://news.ycombinator.com/item?id=35218296 - March 2023 (118 comments)
UBS in talks to acquire Credit Suisse - https://news.ycombinator.com/item?id=35203775 - March 2023 (44 comments)
Credit Suisse borrows more than $50B from Swiss National Bank - https://news.ycombinator.com/item?id=35177523 - March 2023 (9 comments)
Credit Suisse shares fall to record low as top investor rules out more funding - https://news.ycombinator.com/item?id=35169184 - March 2023 (4 comments)
Credit Suisse sheds nearly 25%, key backer says no more money - https://news.ycombinator.com/item?id=35166892 - March 2023 (575 comments)
Credit Suisse finds ‘material weakness’ in reporting, scraps exec bonuses - https://news.ycombinator.com/item?id=35151690 - March 2023 (98 comments)
“Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said Sunday at a press conference announcing the deal.”
— https://www.bloomberg.com/news/articles/2023-03-19/ubs-s-cha...
Oof. Sounds like a lot of CS investment bankers are going to be out of a job soon.
Closing out those positions could sway the fortunes of American blue chip stocks and publicly traded companies around the world.
Closing CS’s trading arm could reshape the entire US stock market over night.
Yes. There will be hundreds to thousands of job losses, for sure.
> Closing CS’s trading arm could reshape the entire US trading arm over night.
Yes, it could and it will.
This is one of those things where we can try to tell one another to be prepared, but how?
I see how my comment could be taken either way though!
Then maybe don't fall for almost-obvious scams like Archegos
The fact that UBS is present should more or less confirm that there is a deal between CS and UBS.
Latest reports also state that the SNB is going to be providing 100B in liquidity to UBS if they need it.
The purchase price is 3B CHF.
And selling the bonds now would put them in the red.
So either they have been given better-than-market rates, or they're pulling some other accounting trick to make it look like there is more of value here than there really is...
You assume that the spread is zero and that there are actually buyers. But I might be wrong here, I don't know about the liquidity of these bonds.
There were likely internal (to CS) marks based on assumptions. The assumptions may have assumed baseline market conditions. External parties came in and didnt want to assume baseline market conditions and/or didnt agree with the assumptions, so they were changed to more conservative figures, and new marks came out. The new marks were significantly lower. They have veto power over the deal and the government was forced to backstop to make the deal happen.
Edit: and now CBs come out with additional coordinated measure.
They’re clearly insolvent without this, no? The Swiss government forced UBS to do this at gunpoint, why else would they do that
> The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
This makes more sense. It's an attempt to manipulate world financial markets. But if the deal doesn't address the root cause, the same situation will repeat soon enough.
There's also this from a different article:
> The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn’t invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10%.
https://www.krqe.com/news/business/swiss-to-hold-news-confer...
So maybe there's something to be gained by making UBS/CS bigger. It allows investment by other private parties that would have otherwise triggered onerous provisions.
Hah!
I would have been happier, if they just nationalized the bank and unwound it, even if i got less pennies per dollar invested or even zero. Now we will get another bank that will be holding the baggage. Amazing :|
You had a huge upside if things worked out.
Instead, you predictably lost the bet and still got paid some compensation in the fire sale.
Not a bad play and not a bad outcome if you went in with your eyes open.
The thing i am unhappy about, to reiterate myself, is bundling CS to UBS. I am invested in UBS as well, and guess what, i will lose way more on that investment due to this forced merger.
If the govt. just unwound the assets slowly, it won't affect a relatively healthy bank, which was saved in 2008.
I hope i am wrong, but i feel like ubs prices are gonna fall like a knife at the opening tomorrow, unless the SNB starts buying it.
https://www.reuters.com/business/finance/credit-suisse-write...
Of course, I can't blame anyone. Its easy for me to say anything chilling on a couch behind a screen. Cant imagine the stress the regulators and board went through to get this out before monday morning to plug the disaster waiting to happen if CS just went belly up blocking businesses and everyone involved with CS.
Lets hope this stops soon.
It does look a bit like they have just done the full cycle of insolvency to bankruptcy to selling off the pieces and distributing the proceeds in a 48 hour window. UBS are (effectively) not buying "Credit Suisse", they are buying the post bankruptcy assets (which somehow had a market cap of ~7bn at the close of market trading and Friday).
Obviously for a to-big-to-fail bank you cant go through all the steps.
I am a bit surprised and a bit unhappy that the 10k I bet on that mutt turned out to be a losing bet. Why didn't someone warn me?
But on the other hand, I think CS brand and culture is more toxic than its balance sheet.
I would like to be in the paratroopers squad cleaning the CS.
EDIT: This is likely wrong, it's probably more like 20+%, I was using the $.27 a stock from an earlier price of about 1 billion. It appears that the actual price is more than 2 billion.
> End
> Crisis
Shit's starting. Fasten your seat belts. One week from now things will be different.
50% of existing mortgages were written between 2020 and 2022 at around 3% interest at 30 years. The banks holding all those are underwater as interest rates on much safer treasuries are higher. Imagine if we start to see a bit of defaulting on those mortgages!
Mix in all the long dates treasuries they’re sitting on.
The FDIC doesn't have enough money to even cover the <250k deposits at the hundreds of banks that are insolvent when marked to market.
So we’ll either see emergency rate cuts which will increase inflation or we see the fed ignite it and the system collapses. Or they print money to backstop it all resulting in more inflation. Possibly hyper inflation.
Worse for the banks, those on low rate loans will sit tight.
Also keep in mind many mortgages are non-conforming so Freddie can’t buy them.
https://www.20min.ch/story/jetzt-informiert-der-bundesrat-ue...
That’s a funny way of saying “we’re gonna punish everyone who previously lent money to CS.”
This question was asked at the end of the press conference, the answer (in english translation) sounded like garbled nonsense.
They are not. The holders of some particular kind of bond designed to be wiped out when some capital thresholds are triggered are wiped out. (It may be debatable if what happened here was or not a trigger event though.)
https://www.credit-suisse.com/about-us/en/investor-relations...
(I mean, it’s true that they would be converted to equity in some scenarios when capital levels are triggered - my comment was misleading - but it’s also true that they are wiped out in other scenarios and it’s the FINMA’s call in this case.)
"In UBS’s deal to buy Credit Suisse, shareholders are getting something (about CHF 3 billion worth of Credit Suisse shares) and Credit Suisse’s AT1 holders are getting nothing: The Credit Suisse AT1 securities are getting zeroed. This is not, to be clear, exactly because Credit Suisse’s CET1 capital fell below 7%; instead, there is a separate clause of the AT1s allowing them to be zeroed if the bank’s regulator decides that zeroing them is “an essential requirement to prevent CSG from becoming insolvent, bankrupt or unable to pay a material part of its debts as they fall due.” Plus, in a situation like this, the banking regulators get to do a certain amount of ad hoc stuff, and they do. (They got rid of the shareholder vote on the deal!) Zeroing the AT1s while preserving a little value for the common does seem to have been done in an ad hoc way; my point is just that it follows very logically from the terms and function of the AT1s."
If however, they required a bail out ... then they cant have had that much capital left. It is not compatible to be bankrupt, but have 40bn of capital, while also only being worth 2bn - one of the statements has to be false.
“There has also been some confusion about solvency being equal to viability. Viability is about the ability to operate viably and independently without any form of extraordinary state support, whereas solvency is merely the ability to pay debts as they fall due. So, one can be non-viable at one point, and still be solvent at that point, which may have been the case for Credit Suisse. Viability asks will the bank last on its own, and solvency asks can they pay their debts.”
When you lend you expect to be paid back unless there is bankruptcy, and then you expect get a place in line for the assets.
The situation where someone else gets to buy the assets out, leaving behind the debt seems unorthodox.
They speedran the bankruptcy, hand wringing and liquidation. The line was formed and all the money has already been handed out.
No lenders or shareholders are in the room at all - shareholders dont get a say on if they want to sell their shares that were worth 7 billion on friday for 2 billion either.
Would you be upset if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours?
> if you loan me 10B on thursday, Bob lends me 10B on Friday, then Monday the Bob says the business will be sold to UBS who will honor his loans but not yours
In your example, Bob is getting back 2bn of his 10bn and I am getting back 0. The term of neither agreement are being respected, people are just being told you get what you get and if you dont like it you can have less. Everyone has been served up a shit sandwich for dinner.
In plain terms, money lent from the government is not discharged in bankruptcy. It all has to get paid back with interest. Private lenders of emergency liquidity and get zeroed out.
What is happening right now is the byproduct of governments not wanting to face an economic crisis and a health crisis at the same time.
Now the health crisis is over (or better yet the panic around COVID has subsided) now we have to face the economic crisis that comes with closing down the world for 2 years.
We have only just pulled that forward. There is no free lunch.
However, governments used monetary policy much too aggressively (printing money) whereas they should have been using fiscal policy (taxing rich people). Now comes the reckoning.
Exactly, the lost production due to lockdowns and massive government stimulus wasn't free. We're paying for it now.
We ought to amend the constitution, in two ways: clawbacks for variable compensation in too-big-to-fail banks and add such irresponsible behavior to the criminal code.
It is time for prison for those responsible for this fiasco.
Also, one nations constitution isn't going to prevent this issue with another nations bank lol.
If only Bloomberg News had competitors.
We're in a weird timeline when the investors on /r/SuperStonk begin accurately predicting the future.
I'm going to pop some popcorn and watch it play out either way.
"Willingly" in what sense? I suspect they were heavily leaned on by the Swiss government.
Reddit can and does create echo chambers. But that doesn't mean I wasn't willing to fully acknowledge and concede that this Reddit community was /right/ about this.
Dial back your sensitivity. We're on the same side.
I wonder what the Fed will do next i.e. conform to market expectations of a cooling off of QT and hikes and let inflation possibly rise or continue at 6%, or be resolute in raising rates to control inflation at the risk of a systemic failure.
The fed has already added hundreds of billions to their books this week and is looking at a 25bps hike. From where we're at, this is effectively QE.
How are you calculating that?
There was a level at which more modest rates would have gradually bent inflation downward over time, and it would have taken a while (a year or two longer, say). IMO the Fed was too aggressive in trying to stop it asap. They went too far too fast and we'll see a rolling fallout from it for several years yet. Lower rates with elevated inflation for a bit longer, would have been the more prudent choice, than cranking the volume fast and risking a financial crisis.
The “QE” money on the books is a loan as of right now which isn’t QE.
Now will QT continue? Probably not, we’re hitting a liquidity floor. I see rate hikes may continuing though.
During continued QE the Fed will re-purchase these assets when their existing ones mature. During QT on maturity rather than buy assets again they write them off and liquidity (money) is removed from the market.
This may or may not restart inflation but it’s the only option that will be effective.
The Fed has been cargo-culting Volkner in the 80’s without considering this is a different beast. They needed to raise rates but they needed to do it far more deliberately and cautiously. And of course should have started sooner.
We need to accept multiple years of 6-10% (possibly more) inflation or collapse everything and create carnage no one wants to live in.
And all of this with the context that most of the inflation is supply side so interest rate rises are anaemic anyway.
I don’t see a pivot unfortunately even though it seems they are playing with fire here.
I have been arguing for years that they'd never get rates back to where they were pre-GFC as so much debt has been taken on at low rates. Increasing rates to pre-GFC levels will have a massive impact on the ability of borrowers to service debt and push down asset prices.
Now that they're trying to put rates back to pre-GFC levels we can see that playing out. If they choose to continue of this path it will lead to a significant recession.
I’m not trying to doom and gloom though. I’m just saying the Fed did not consider the time aspect of all the bonds/etc and have haphazardly raised rates too fast. If they slow it down it’s not such an issue since bonds respect time. It has been too much too fast. Erratic. Especially since just over a year ago they guided totally differently.
So they need to cut. We need to deal with reasonable inflation for at least 4 more years and then we can aggressively hike rates if need be as the mountain of low interest bonds will be turning the corner.
They need to hold pattern for a few months, then continue raising. The bank crisis is showing no signs of prompting deflation.
When deposits are destroyed, that causes deflation. Deposits aren’t being destroyed. But wealth, in the form of banks’ non-deposit liabilities, is.
The Fed would welcome such deflation (though not its cause). But that doesn’t seem to be likely. That said, nothing which is happening right now is inflationary other than, potentially, the Fed pausing its rate increases.
Not the Fed per se. And that’s the point. Quantity of deposits in the system is preserved. Wealth down. Fed support of banks up. How this balances is uncertain, but nothing is unilaterally inflationary.
And unfortunately, on top of that comes profiteering. The price hikes of everything that went far and beyond reasonable increases due to rising energy costs are insane - and outside of Spain which has introduced serious price controls and other counter-inflationary measures and Hungary where Orban misdirects EU funds into bribing his voters, no major Western government is doing anything about that.
At least the French are bringing out the pitchforks.
The Fed knows it too, else QT and interest rate hikes wouldn't be used as weapons against inflation. Political messaging is oriented around not taking responsibility and blaming the pandemic, supply chain issues, Ukraine war etc. These reasons do play a role to be clear, but not to the extent that $ printing does.
https://www.bostonfed.org/publications/current-policy-perspe...
So essentially, in more concentrated markets cost shocks are more likely to result in extended periods of inflation.
Why are things more concentrated? A lot of reasons, but a big one is that there were almost no effective antitrust actions for decades, and courts weakened the ability of the DOJ and FTC to enforce competitive guidelines. At the same time, Congress weakened the regulatory controls.
Russia wants to take Ukrainian territory, Ukraine wants to keep it and neither wants any compromise there between.
Also they probably are trying to get them to negotiate a ceasefire anyway, even if those talks aren’t being advertised, but I don’t have any inside info on that either.
Putin literally said there are no negotiations possible.
The only way to force Putin to the negotiation table is to crush the Russian forces.
I am more worried about escalation, nukes, forever wars etc. Ukraine fighting for pre 2014 borders is one case that triggers this, among many others
I bet you the rebuilding phase will also involve American cos.
We've been trying the "wait them out" strategy with North Korea and it's gone very badly IMO. At some point it's better to grasp the nettle, especially when you're lucky enough to get as clear-cut a conflict as this. There will probably never be a better time to draw the line and hold it.
> I am more worried about escalation, nukes, forever wars etc. Ukraine fighting for pre 2014 borders is one case that triggers this, among many others
Accepting peace on anything less than a return to pre-2014 borders would doom the world in the long term. It would set a clear precedent that anyone with nuclear weapons can take what they want with no downsides, and there's no coming back from that.
> I bet you the rebuilding phase will also involve American cos.
It probably will, and there will probably be corruption and looting and backhanders. It's going to suck, but there's no scenario in which the next ten or twenty years of being Ukraine doesn't suck. Kicking out Russia quickly and getting on with the rebuilding, ideally with international support for all the waste that that will involve, is the least-bad future.
Well, you are right that cutting off military assistance to Ukraine would force it to "negotiate" (quotes because result would be more like a capitulation, considering the list of Russian demands). However, what would be the motivation for Putin to commit to peaceful resolution in such case instead of continuing the conquest of (weakened, out of arms and ammo) Ukraine?
Interesting turn of phrase, and one used heavily in Russian propaganda to remove any agency from the Ukrainian people. If the Ukrainian government had listened to their western allies Zelensky would have been on an evacuation flight shortly after the first missile hit.
I'm quite sure they are not "having to fight" against Russia for anyone except themselves, and to ensure the continued existence of their country.
How are the US and NATO's actions escalating any further than that? Last i checked there was no Russian territory occupied by Ukrainian forces, let alone any hint of NATO involvement in achieving such an escalation.
Price controls are not effective in curbing inflation [1] And they have a deleterious effect on production. For example: no farmer is gonna sell his produce at a price that is less than his cost to produce. So if you control the price, there will be nothing on the shelf.
[1]https://www.stlouisfed.org/publications/regional-economist/2...
Or you can do post-fact price controls by comparing profits now with average profits over the last years and taxing everything above at 100%.
All it needs is the political will to help the people.
If you mean whether the panic will move on to the next bank with a similar reputation, then…
Isn't there always a handful of banks that are like that and isn't there always a handful of other banks that are invested? And isn't there always another set of banks that are invested in them? But is there really no chance of a devastating, cascading event? Should we really not panic? The only thing that holds banking together, is it that we don't panic? Because if so, then...
It is not surprising at all that all the mistrust finally caught up with CS.
You can go to CS and say "Here, I have a million, please buy and sell some shares for me so my children will have two million each", or "here, we sell much in the runup to Christmas but our costs are evenly spread over the year, please manage our spare cash so we'll earn something when we can".
of course, employees of various companies in a place like NYC socialize together after work (in NY, everybody goes out after work on the regular, who wants to go home to a teeny airshaft apartment?) so they're basically engaging in a large game of telephone about what happened each day, might have the same effect.
And confidence has been lacking for much longer than this recent crisis.
Officially, Boeing bought McDonnell-Douglas, but in the end the engineers at Boeing got pushed out and the bean counters at M-D were in charge and ran it to the ground.
The question is will prudent people run the new UBS? Or the same sort of people who got CS in the trouble that it is in?
This should prove a cash cow for UBS so long as they ruthlessly trim CS.
The final deal is a bit different from OP 3.3bn, 100bn liquidity and 8bn indemnity from losses (more than market value of CS Friday!)
The beast must be fed.
[0] https://www.cnbc.com/2023/03/18/midsize-us-banks-reportedly-...
It's that simple. Either they get a % of something or 100% of 0.
Especially since now the purchase price went to $2Bi.
Instead of general ranting I would like to learn who exactly goes bust if we allow the uncertainty for a few weeks? Is it more than just a gift to shareholders and market speculators?
Frankly I prefer the US solution of seizing a bank and stripping it for parts.
This year is getting worse by the minute. Insane inflation killing many industries. AI threatening to take jobs - and probably actually taking a few art jobs. Now cascading bank runs and the end of one of the oldest banks in the world as an independent entity.
ironically long duration tech stocks and crypto have been surging all year and outperforming basically every other sector
To get a better understanding of that, one might "rewind" time to look back at what those containers were carrying when there was a container shortage.
Since containers are a mechanism for moving goods, one might look at supply and demand of goods to try to understand what that relationship is.
Historically, when supplies are tight, retailers order the same order from multiple suppliers in the hope that one of them will come through. This typically results in adding production capacity to meet this "shadow" demand (there are orders for 300 widgets but the retailer on the other end really only wants 100 widgets, they have just ordered 100 from three different distributors who each passed on that order to the factory).
When the factories ramp up to cover that shadow demand, they put a lot of product into the distribution channel but retailer cancels their other two orders after one is filled. As a result there is now 2x the "demand" level sitting in distribution. The next time the retailer orders, their orders are satisfied out of existing stock.
Until the distributors have worked through this "excess" they don't order anything from the factories and the factories have nothing to do and don't need to ship anything so the containers sit there empty.
This "boom" and "bust" cycle is an oscillation that occurs in systems that are not critically damped (a term from systems analysis). During the 2020/2021 years a lot of demand was unmet and we had the "supply chain crisis." Once things ramped up, it is expected to have an "over supply" crisis.
There are many people that track actual goods. It's better than looking for a proxy.
Which artists and writers aside from pretentious copy cats are getting replaced by AI?
I feel artists selling “generic art” for pictures in lobbies and homes are probably going to be out of a job.
At most it would be replacing one licensing middleman for another.
And the agencies pay the artists, yes? Now you can just get art from MidJourney and skip the artists.
They are ‘Too big to fail’ until they fail.
It's understandable people are mad at the banks and don't want taxpayer money propping up for-profit institutions. But what is the rationale for coaxing companies into taking risks at their behest that they basically know is going to be worse than you think going in?