According to FT, Switzerland is preparing a law change to bypass shareholders. The UBS bank has offered about one billion euros for Credit Suisse, i.e. only a fraction of its market value.
15:34•Updated 17:25
The Swiss bank UBS has made a buyout offer of about one billion euros for Credit Suisse, which was on the brink of collapse, says the Financial Times magazine (you will switch to another service).
According to the Bloomberg news agency, Switzerland is also considering the partial or full nationalization of Credit Suisse if the deal does not go through.
The Offer Price of around one billion euros is only a fraction of Credit Suisse’s market value. The losers would be Suisse’s current shareholders. According to Bloomberg, Suisse opposes the offer.
Swiss authorities are considering passing on some of the bank’s losses to Credit Suisse bondholders as part of the deal. UBS, on the other hand, is asking the Swiss administration for compensation of several billion euros in case it later has to pay, for example, damages or fines for Credit Suisse’s operations.
The idea of ousting the shareholders indicates the seriousness of the situation
Throughout the weekend, Swiss authorities have rushed to find a solution to Credit Suisse’s crisis situation. The aim is to get it ready before the market opens on Monday. The fear is that the crisis bank’s problems will spread to other banks and financial markets.
According to FT, Switzerland is making a law change that would allow the transaction to be done without the shareholders being able to vote on the decision.
Bypassing the shareholders in deciding on a business transaction would be very exceptional. The fact that this would be made possible by a change in the law shows how serious a situation Credit Suisse has gotten itself into.
Credit Suisse, one of Europe’s 20 largest banks, is classified as a global, systemically important bank, meaning it is too big to fail. The collapse of a bank classified as such would have serious effects on the entire banking system, the financial market and eventually also the real economy.
As a Swiss company, Credit Suisse does not belong to the Eurosystem or the European Banking Union, but as a major European bank it still has extensive interdependencies with other European banks and financial institutions.
That’s why the Swiss banking authorities rushed to take Suisse over to rival UBS. Switzerland’s second largest bank, UBS, is still much bigger than Credit Suisse.
What has happened to Credit Suisse?
The situation of Credit Suisse, which has been in trouble for years, was in crisis at the beginning of the week, when its latest audit report was published. It revealed that investors and depositors have been withdrawing their money from the bank at a fast pace during the rest of the year. The pace has been clearly faster than what the bank’s management has communicated to the public in the past.
On Wednesday, Suisse’s major owner, a Saudi Arabian, left the Saudi National Bank and said that there is no more money for Suisse. The Saudi bank bought a ten percent stake in Suisse last year.
The announcement sent the Suisse exchange rate down by tens of percent and started a deposit flight. It means a situation where large numbers of depositors withdraw their money from their deposit accounts. If the situation is not addressed, the bank running out of deposits will run out of money.
On the same Wednesday, the Swiss National Bank stepped into the picture and promised Suisse emergency funding of around 50 billion euros. The purpose was to reassure the bank’s depositors and investors.
However, it was not enough, the deposit flight continued.
Even after the intervention of the central bank, depositors have withdrawn their deposits from Suisse at a rate of up to ten billion euros per day. If the bank were to continue as an independent bank, it would almost certainly become insolvent.
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The story was updated on March 19 at 16:59: added Bloomberg’s information about Switzerland’s intentions to nationalize Credit Suisse if the deal does not happen.