The takeover of troubled Credit Suisse by rival banking giant UBS has saved Switzerland’s economy from major problems such as deposit runs at other banks, according to national regulator FINMA on Wednesday.
In a deal announced last month, FINMA and the Swiss central bank brokered the historic takeover for 3 billion Swiss francs ($3.3 billion). As part of the transaction, the regulator ordered Credit Suisse to write down to zero approximately 16 billion Swiss francs ($17.6 billion) of its Additional Tier 1 (AT1) bonds, which are widely regarded as higher risk investments, in order to strengthen the bank’s capital and resolve its liquidity problems.
The bankruptcy plan was “de-prioritized early on due to its high tangible and intangible costs,” according to FINMA CEO Urban Angehrn. The CEO noted that insolvency would have left Credit Suisse’s functional parts operating as a Swiss-only bank, but with a “damaged reputation.” According to reports, a temporary takeover by the Swiss government would have put taxpayers at risk of loss.
“The parent bank Credit Suisse AG would have failed – a Swiss bank with total assets in excess of 350 billion Swiss francs ($387 billion) and ongoing business in the billions,” Angehrn stated. “It’s not difficult to imagine the disastrous impact a bank and wealth manager the size of Credit Suisse AG would have had on Switzerland’s financial center and private banking industry,” he said. “Many other Swiss banks would almost certainly have faced a deposit run, as Credit Suisse did in the fourth quarter of 2022.”
According to the FINMA CEO, “the damage to the Swiss economy, financial center, and Switzerland’s reputation would have been enormous, with unquantifiable effects on tax revenues and jobs.”
He also claimed that the merger plan was ultimately preferred in order to both stabilize Credit Suisse and avoid a domino effect on the global banking sector.
“The current fragile state of financial markets as a result of the shift to monetary tightening in 2022, the uncertain economic outlook, the crisis at certain US banks, and the overall geopolitical backdrop were all relevant to our decision,” Angehrn said. “There was a high likelihood that the failure of a global systemically important bank would have resulted in contagion effects, jeopardizing financial stability in Switzerland and globally.”
The US banking crisis exacerbated Credit Suisse’s problems, which were already plagued by a slew of scandals, legal issues, and customer outflows. Furthermore, its largest investor, Saudi National Bank, stated in March that it would be unable to provide financial assistance due to regulatory and statutory constraints.
Credit Suisse reported a 7.3 billion franc (nearly $8 billion) net loss in 2022 and warned that it would incur another “substantial” loss in 2023 before returning to profitability in 2024.
