Ajit Karn
UBS Group AG is emerging as an uncommon winner in Credit Suisse Group AG’s crisis as a result of a historic agreement brokered by the government that includes a vast array of financial shock absorbers.
After a weekend of frenzied negotiations to find a solution before Asian markets opened, the company agreed to acquire its smaller rival for approximately $3.3 billion in a stock transaction that includes extensive guarantees and liquidity provisions. Here are some of the deal’s most notable victors and casualties.
The Champion: Ralph Hamers
UBS’s chief executive officer will see the bank’s wealth and asset management invested assets increase to approximately $5 trillion and obtain a special dispensation to retain Credit Suisse’s profitable Swiss unit, which many analysts estimated to be worth more than three times what UBS paid for the entire company.
Ralph Hamers, the former executive of ING Groep NV, and his team will have much to consider when deciding which enterprises and individuals to retain, modify, or eliminate. However, he will have 56 billion francs of so-called badwill to help cover any writedowns, as well as 9 billion francs of Swiss government guarantees to absorb certain losses. In addition, the company has access to a vast liquidity line from the central bank.
While UBS will temporarily suspend its share repurchases, it remains committed to a dividend increase.
The (Many) Victims:
Top Credit Suisse shareholders
Gulf investors both ancient and new are in distress. Saudi National Bank’s investment was astonishingly short-lived: the bank lost 1,1 billion Swiss francs less than 15 weeks after completing the purchase of its stake in Credit Suisse’s most recent capital raise. A few months ago, when the company became the Swiss bank’s largest shareholder, it believed it was making a wise investment. This week, the chairman of Saudi National Bank fueled the hysteria when he ruled out increasing its stake in Credit Suisse.
The Qatar Investment Authority’s suffering occurred over a much lengthier time frame, as it first invested during the previous financial crisis, but its losses were likely even larger. In addition to being the bank’s second-largest creditor, QIA previously held the firm’s AT1 bonds, which were written down to zero as part of the transaction. However, it is unknown whether QIA still holds this debt. As a result of Switzerland’s rule change, shareholders will not even have the opportunity to vote on this transaction.
Ulrich Koerner
The chief executive officer of Credit Suisse is anticipated to depart, having inherited a failing financial institution that he was unable to revive. After a deluge of controversies and losses, Ulrich Koerner, who only assumed the position of CEO in the summer of last year, had already devised a plan to reduce risk and shift the company’s focus to wealth management. A proposal to spin off the bank’s most profitable investment banking businesses was even more audacious. However, the company was unable to recover from a confidence crisis that prompted billions of dollars to withdraw in October. In recent days, the pressure increased to the point where the Swiss government was compelled to intervene.
Michael Klein
The grand scheme of the former chief of Citigroup Inc.’s investment bank to revitalise the First Boston brand and transform it into a Wall Street advisory powerhouse has failed. Michael Klein, who was chosen to lead the CSFB offshoot, was in the process of selling his advisory boutique to Credit Suisse for approximately $210 million when the bank’s fortunes abruptly deteriorated in recent weeks. While UBS Chairman Colm Kelleher did not directly address CSFB during a late-Sunday press conference, he did indicate that the firm was pleased with its own investment bank and intended to significantly reduce Credit Suisse’s as well as reduce risk.
Also read: Credit Suisse asserts that the largest Swiss bank’s $1 billion takeover bid is inadequate
AT1 Bondholders
Typically, bond investors are better protected from losses than shareholders, but this is not the case. The Swiss regulator will impose losses on $17 billion of high-risk debt known as Additional Tier 1 bonds. These bonds are part of a buffer of debt and equity designed to protect taxpayers in the event of a bank failure. The cumulative write-down represented the largest loss ever for the $275 billion AT1 market in Europe. Shareholders, who are typically the first to bear the brunt of a writedown, received at least some consideration.
Swiss officials and taxpayers
Finma became the first regulator since the financial crisis to observe a bank considered systemically significant being rescued. The Swiss government had to provide billions of francs in guarantees to UBS, and the central bank had to provide extensive liquidity backstops to facilitate the rescue, placing taxpayers at risk 15 years after UBS was rescued out. The Swiss Minister of Finance, Karin Keller-Sutter, acknowledged that it was the only way to stabilise global financial markets. From a 9 billion franc guarantee on potential losses to massive credit lines from the Swiss central bank, a great deal of Swiss money is being put up to help withstand any shocks from the transaction.
as well as the Late Exit
Harris Partners
As Credit Suisse’s largest shareholder, Harris Associates and stock analyst David Herro were intimately tied to its fate for years. He staunchly supported former CEO Tidjane Thiam during his battles with the board following the espionage scandal and remained with the bank through years of scandals and losses. He tossed in the towel amidst the latest restructuring plan in October and massive outflows. He stated in early March that he had sold his stake in the company in recent months. Although it is unclear at what price he sold, he was able to avoid the stock’s precipitous declines in recent weeks, when the bank was being pummelling by a crisis of confidence.
