The straight leg surgery of ubs on the bondholders of Credit Suisse as part of the bailout operation in early March, as promised, it continues to generate retaliation. Now I'm two complaints by investors. But there are many pieces of this puzzle and many are still missing.
As you recall, according to the agreement of UBS-Credit Suisse merger, holders of Credit Suisse AT1 bonds will receive nothing, while shareholders, who typically rank below bondholders in terms of who gets paid when a bank or company fails, will receive $3,23 billion. The matter of giving precedence to shareholders over bondholders, reversing the rules dictated by the BRRD (Bank resolution regulatory directive) does not really go down to investors. And the statement of announced war is only at the first skirmishes.
According to the Swiss newspaper Sonntagszeitung the Federal Department of Finance (FDF) has received two complaints against the Confederation.
In detail, these are claims for compensation for State liability, as explained by a spokeswoman for the Department, without providing further details on the content of the proceedings. Under the lens of the bondholders and their lawyers there would be i international treaties of investment protection signed by Switzerland with many countries. These documents provide for compensation in the event of state expropriation, a case in which an attempt is also being made to include the zeroing of At1 subordinated bonds.
Here are the elements on which the legal actions are based
To move on behalf of investors (mostly asset managers and hedge funds) the Californian law firm is at the forefront Quinn Emanuel Urquhart & Sullivan. The lawsuits own a "significant percentage of the total notional value of AT1s," the firm said in a statement, and in many cases "invested in the bonds long before the Credit Suisse-UBS merger." There is still the possibility "that the various actors recognize and correct the mistakes made in hastily orchestrating this integration," Thomas Werlen, managing partner of the Zurich office of the Quinn Emanuel firm, told Reuters.
On Thursday March 23rd, the FINMA, the Swiss Financial Market Supervisory Authority, declared that Credit Suisse's access to the extraordinary liquidity made available by the central bank on Wednesday March 15th invalidated business continuity, configuring itself as a non-viability point. In short, the emergency law has had a retroactive effect and this aspect too, many investors point out, would constitute a violation of the fundamental principles of the law.
The Swiss parliament is also against the merger
In the meantime, the political game is also being played on the Ubs/credit suisse affair, with the Swiss Parliament wholly opposed to the operation. The National Council in fact, it rejected the commitment credits for the acquisition of Credit Suisse by UBS. This means that the guarantees will be provided without Parliament's endorsement: a purely symbolic vote, but which will also be historic, according to what was reported by the Swiss newspaper Tio. The Federal Council has already made binding commitments to Credit Suisse and UBS under emergency law. The "no" of the National Council is therefore to be understood as a protest vote.
Democentrists, socialists and ecologists have often evoked the bailout of UBS in 2008, which they said should have resulted in "too big to fail" rules far stricter than those subsequently adopted. PLR, the Center and the liberal Greens have for their part asked to grant the guarantees, also to avoid sending bad signals to the financial markets and creating a systemic problem.
How much will this merger cost the Swiss Confederation?
The first guarantee loan concerns a guarantee against default risk of 100 billion which the Confederation will make available to the SNB. This loan will have a lien in the event of Credit Suisse's bankruptcy. This means that its repayment will take precedence over the claims of other creditors (with the exception of wages, social security contributions and some other privileged commitments), according to the Swiss newspaper.
For the sole provision of this state instrument, the Confederation is talking about 250 million francs a year. The second claim concerns UBS: Bern provides a guarantee to UBS for any losses arising from the sale of Credit Suisse assets amounting to 9 billion. This guarantee would only apply if UBS's losses exceed $5 billion.
However, other costs must be added to the two guarantees granted, whereby the Confederation and the SNB are therefore exposed in total for total 259 billion.
But just in these days, always the elevtico newspaper SonntagsZeitung, wrote that the acquisition of Credit Suisse by UBS could cost the Confederation another 8 billion francs, noting that the greater outlay is due to bonds declared worthless by FINMA, which amount to almost 16 billion francs. The indicative value of these securities is based on the stock market quotation on 17 March, which was precisely around 8 billion.
The employment aspect: up to 36.000 jobs at risk
Not a painless operation also from an employment point of view because, after completing the merger, UBS will cut between 20% and 30% of the jobs of the new bank that will be born, i.e. about 36.000 seats all over the world including 11.000 in Switzerland, another 25.000 worldwide, according to SonntagsZeitung. Credit Suisse had announced 9.000 cuts ahead of the UBS bailout. The two lenders together employed nearly 125.000 people at the end of 2022, with around 30% of the total in Switzerland. A spokesman for UBS did not comment on the indiscretion, he limited himself to saying that he will clarify the job cuts as soon as possible. But Deutsche Bank, Citigroup and JP Morgan Chase & Co. are already poised to grab some of the bankers and asset managers who may be left behind.
The outflows of Credit Suisse clients continue
The rescue also failed to stop customer outflows for Credit Suisse. According to Morningstar data, in the three weeks after the UBS intervention they were divested from the bank 5,6 billion dollars. Investors had already withdrawn 3 billion immediately after the bailout, to which 2,5 billion were added in the period between 23 March and 6 April. "There is still uncertainty about the transaction and the potential impact it could have on Credit Suisse Asset Management," said Johann Scholtz, analyst at Morningstar.
The issue is carefully monitored by regulators, because liquidity outflows were precisely the factor that made the bank screw up until it got to the bailout. Credit Suisse already lost CHF 123 billion in assets under management last year, mostly in the last quarter. In 2023 the trend slowed down, but it didn't stop.
The Swiss prosecutor is also at work
Also the Swiss prosecutor has turned the spotlight on the merger between Credit Suisse and UBS. The Swiss Attorney General's Office has contacted national and local authorities and issued investigation orders to identify possible crimes. “In view of the significance of the events” the Federal Prosecutor “intends to proactively fulfill his mandate and responsibility to contribute to a clean Swiss financial center and has set up a monitoring system in order to take immediate measures in the event of any circumstances which fall under its jurisdiction,” the authority said in a statement.
