The Swiss Confederation will grant a guarantee equivalent to more than 9,000 million euros to reduce the risks that the bank UBS incurs when it absorbs Credit Suisse, Finance Minister Karin Keller-Sutter said on Sunday.
This guarantee works “as if it were insurance” and it will cover possible losses “of a very specific portfolio” of Credit Suisse and only if these losses exceed a threshold that the minister did not specify.
Keller-Sutter indicated that the bankruptcy of Credit Suisse “would have had irreparable consequences” not only for Switzerland, but for banks in the rest of the world and that for this reason “we assume responsibilities that go beyond our own borders.”
The purchase will be for 3,000 million Swiss francs (3,020 million euros, 3,200 million dollars) in UBS shares, that is, at a price of only 0.76 Swiss francs per Credit Suisse share that on Friday were still worth 1.86 francs.
The merger of the two banking giants, which are part of the group of 30 banks considered key in the global financial system, should be completed and announced in time for the opening of the Asian markets. The hope is that the announcement will be enough to prevent a general panic.
The banking sector has been under strain since major central banks raised rates sharply in an attempt to control inflation. Many institutions failed to prepare after years of access to cheap money.
The failure of Silicon Valley Bank in the United States and other regional banks increased investor anxiety and caused the crisis in other entities considered weak.
This is the case of Credit Suisse, which has been immersed in various scandals for two years that it failed to resolve despite the efforts of its management, which announced a three-year restructuring plan.
The Swiss central bank on Wednesday announced a 50 billion Swiss franc ($54 billion) bailout package after a black day on stocks but the move only gave the bank a brief respite.
Regulators and the federal government acted under immense pressure from Switzerland’s main economic partners to clean up the situation before it spread to the entire world.
According to the Financial Times and Blick, the bank’s clients withdrew 10 billion Swiss francs ($10.8 billion) in deposits in a single day late last week.
UBS will benefit from a government guarantee of about 9 billion Swiss francs ($9.75 billion) that serves as insurance if problems are discovered, Keller-Sutter said.
The central bank will also grant a liquidity facility of up to 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse
UBS, which took several years to recover from the 2008 financial crisis and a massive state bailout, is beginning to reap the rewards of its efforts.
That is why it took a lot of effort on the part of the authorities before the bank’s management agreed to take on the role of rescuer for Credit Suisse.
On Sunday, the union of swiss bank employees “demanded” the participation of the social partners in the discussions, given the “huge” stakes in the purchase, which could mean massive job losses.
Source: Ambito
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