Monday, March 27, 2023

Credit Suisse: The scenarios for the next day – takeover, restructuring or lockout

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Credit Suisse, one of the world’s 30 largest banks deemed too important to fail, has two days to find a formula to calm markets ahead of Monday’s opening and the specter of another black week and to convince.

On Friday night, the Financial Times, citing unnamed sources, reported that UBS, Switzerland’s largest bank, is in talks to buy all or part of its rival, with the blessing of Swiss regulators.

The Swiss central bank (BNS) “wants a simple solution before the markets open on Monday,” assures the business daily, which admits there is no certainty a deal will be possible.

Neither Credit Suisse nor BNS wanted to comment to AFP. UBS and the Swiss money market regulator (Finma) did not immediately respond to requests for comment.

Credit Suisse is certainly not expensive. After a dark week on the stock market, which forced the central bank to lend 50 billion Swiss francs (50.4 billion euros) to give the bank of Zurich a breather and calm the markets, it was not the question at the close of yesterday’s trading worth just over 8 billion Swiss francs (8.1 billion euros).

But an acquisition of this magnitude is terribly complicated, especially since in this case it is urgent.

And although the two regulators emphasize that “Credit Suisse meets the capital and liquidity requirements of systemically important banks,” the rise in the bank’s credit default swaps (CDS) premiums is a sign of a lack of confidence.

salvation, but of what?

Credit Suisse has endured two years of scandals that, according to management, revealed “significant weaknesses” in its “internal controls.” Finma had accused it of “circumventing its auditing obligations” in the case of the bankruptcy of the financial company Greensill, which marked the beginning of the problems.

In 2022, the bank had a net loss of 7.3 billion Swiss francs amid massive withdrawals from its customers. He also expects a “significant” pre-tax loss this year.

“It’s a bank that looks like it’ll never be able to put its house back in order,” noted IG analyst Chris Bossan in a comment this week.

UBS has spent years recovering after flirting with disaster during the 2008 crisis, and it’s not certain they’ll embark on a fresh restructuring now that it’s beginning to reap the rewards of its efforts want.

The scenario of a bank takeover by Credit Suisse was also mentioned by analysts at JP Morgan this week, “with UBS as a possible option”.

Given the weight of a merger, analysts could say that Credit Suisse’s Swiss arm, which includes retail banking and lending to small and medium-sized businesses, could go public or be spun off.

This would also be a way of avoiding mass redundancies in Switzerland due to the unavoidable overlapping of activities.

According to FT, only funds and property management could then be awarded to UBS or another candidate.

Another obstacle to a merger is the competition commission, estimates a former Finma boss, Essen Altine, in an interview with the CH media group. “WEKO would undoubtedly see significant obstacles because the two institutes hold a dominant position on the market,” he explains.

Faster, louder

On Wednesday, Credit Suisse gained “valuable time” with the help of the central bank, Morningstar analysts estimated, but ruled that its restructuring was “too complicated” and “didn’t go far enough” to reassure financier clients and shareholders.

Among other things, they propose that Credit Suisse sell its loss-making brokerage business.

Analysts at American bank JP Morgan are considering a radical option, which consists in “completely ceasing” the activities of the investment bank.

In late October, Credit Suisse unveiled a sweeping restructuring plan that envisaged cutting 9,000 jobs by 2025, or more than 17% of its workforce.

The bank, which employed 52,000 people at the end of October, wants to focus on its more stable businesses and radically transform its commercial bank.


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