On September 24, 2019, a middleman in a spying operation, administered by the Credit Suisse administrative board commits suicide. This after former CS top banker Kahn, who left for UBS, set his observers in a cinematic standoff on Bahnhofstrasse in the historic heart of Zurich and engaged in a fistfight with the unknown haunters. Greensill, Archegos, Mozambique and a catastrophic management later, CS Group AG seeks its last resort in UBS' arms, with a deal assisted by the Swiss governement, SNB and regulators.
Turmoil is now wide spread after a domino of several collapses tipped off by the blast of FTX and Silicon Valley Bank spilled over into Switzerland with the imminent liquidity failure of Credit Suisse after a massive deprivation of trust among investors and shareholders and billions of outflows in the last week. Do we have to fear continous bank runs now with a forthcoming loss in trust of our entire banking system? Will customers now move their money into more secure assets such as gold, real estate and hard cash, with interest rates rising again, or will they seek decentralized currencies such as crypto, gaining strength from arising distrust in the regulated monetary system?
As much as everyone may be hoping for a new uptick in cryptocurrencies, we should not forget about the fallout crypto has seen in the past few months with several stablecoins losing peg or imploding completely. Celsius, FTX, Alameda Research and more Hedge Funds who carried almost all of their weight in crypto assets had to file for bankruptcy and are now signaling danger about a potential bushfire in crypto. Even though all of crypto might gain tempo short term, the swift and flawless acquisition of Credit Suisse by UBS has shown that there is great interest on the part of states and governments to prevent any situation reminiscent of 2008. In pre-market trading the major banks have all listed with a few points in the red. At the same time, today, March 20, 2023, markets in Asia fall and indicate turbulence in Europe. The price movements at Credit Suisse Group AG, which have also announced themselves in pre-market trading, were materialized this morning, with CS shares losing a whopping 58%, which roughly correlates to the UBS purchase price. Even though a short squeeze was looming for Credit Suisse as recently as Friday, these tendencies, reminiscent of the Game Stop and AMC saga, were ultimately dashed by the bargain takeover price. And this time, no one could claim to "like the stock".
Of much more concern should be UBS Group AG's stock, which was down 13% but has now recovered to a minus comparable to most other large banks. Analysts and investors do not seem to fully trust the stability of UBS, even when taking into account the numerous Swiss security mechanisms amounting to 200 billion. Concerns about possible complications associated with the "execution risk" seem uncertain as of now.
But ordinary citizens should be much more concerned with the following facts. Bonuses will continue to be paid, salary increases were guaranteed this morning while thousands of ordinary bank employees and probably also apprentices will lose their jobs with their branches closing. Especially looking bad today are the shareholders, who have been virtually expropriated. Among them most certainly also pension funds who have yet to find their way to minimize risk in these difficult times and to mitigate potential damage to their retirees.
As a new Status Quo for Swiss consumers, more than 25% mortgage market share is now with a single bank. This is a monopoly that we have never had in this form yet. A significant comparison between the bank and its customers shows, individuals have to provide 20% in private equity when buying a house while large banks are only required to have 5% hard equity to secure their stability. As numerous politicians have already demanded an increase in hard equity to at least 15% since the rescue of UBS in 2008, this will now be a more imminent subject than ever before.
Not financial advice.
blue News: Mittelsmann im CS-Beschattungsskandal begeht Suizid, dor, 01.10.2019 (Text)
Bloomberg: UBS to Buy Credit Suisse in Historic Deal to End Crisis, Ishika Mookerjee, Joe Easton, Andre Janse Van Vuuren, et. al., 19.03.2023, 20.03.2023 (Text)
ZVG via fuw.ch, Valentin Ade, 05.07.2016 (Image)
Bloomberg: UBS to Buy Credit Suisse in Historic Deal to End Crisis, Adrian Kennedy, 20.03.2023 (Image)
CNN: Fear & Greed Index, https://edition.cnn.com/markets/fear-and-greed, 17.03.2023 (Image)
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