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February 2024
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AAM Magazine
February 2024
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Analysis: A saga that keeps on rolling

Credit Suisse

The Credit Suisse saga continues to unfold. The Financial Times reports that investors representing holders of at least US$4.5 billion of the bank’s additional tier 1 or AT1 bonds have succeeded in securing the release of the Swiss Financial Market Supervisory Authority (Finma) decree which enabled the cancellation of $17 billion of the debt as part of its takeover by UBS.

Finma had hitherto kept the wording of the decree secret, but a Swiss court found for the plaintiffs, whose suit accused Finma of acting unconstitutionally in forcing the bond writedown. One investor quoted by the FT described Finma’s reasoning to justify the writedown as “incredible”.

That said, an attempt to capitalise on credit default swaps linked to the AT1 writedown looks to have failed, as the Credit Derivatives Determinations Committee which governs the CDS market unanimously voted that the AT1 debacle did not justify a payout. The bondholders are now reportedly more confident that they have a justifiable case to recover their money.

Meanwhile, UBS filings to the US Securities and Exchange Commission quoted by Reuters show that the bank was given just four days to conduct due diligence on Credit Suisse as regulators pressed for a resolution. The eventual deal - described as “rushed” - will cost UBS some $17 billion.

UBS had conducted extensive scenario analyses on a Credit Suisse takeover in the months leading up to its Swiss peer’s collapse, concluding that a takeover was not desirable. The new information is hardly likely to buttress confidence in the outcome.

And The Wall Street Journal reports that UBS faces a difficult choice of whether to jettison Credit Suisse's domestic banking business, rewarding shareholders but cutting thousands of jobs, or complicating and prolonging the merger process even further by retaining the business. The former option would certainly make the merger even more unpopular than it is now in Switzerland, where official and political oversight of Credit Suisse was lax and over-indulgent before the bank's collapse, and panicky and ham-fisted afterwards.

A regulatory and political apparatus which suppresses free media coverage of financial affairs on behalf of domestic special interests, as Switzerland has done with its banking secrecy law of 2015, deserves all the consequences when things go wrong outside the scope of public scrutiny.