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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
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Home Economy

Credit Suisse Bailout

John Goodden by John Goodden
March 23, 2023
in Economy
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Credit Suisse bailout
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Download file | Play in new window | Duration: 4:32 | Recorded on March 22, 2023

Every day that passes seems to provide us with another instalment of the Credit Suisse bailout saga. A bank that as recently as 2022 was rated by the Financial Stability Board (FSB) as one of 30 banks that are Global Systematically Important Banks (G-SIBs) was first offered a bailout by the Swiss National Bank, and then within a day was taken over by its biggest domestic rival, UBS.

The irony here is that UBS had over-exposed itself during the 2008 financial crisis and had needed help from the Swiss National Bank while Credit Suisse had weathered the 2008 storm much more successfully. How things have changed.

$3 Billion is a Bargain?

It appears the takeover deal was brokered by the Swiss financial authorities. On paper Credit Suisse would appear a bargain – with a total market cap of $8 billion and a ‘supposed’ purchase price of $3 billion. However, UBS didn’t make a move for its rival. Rather it was bought to the table by the Swiss authorities desperately firefighting in the country’s banking sector.

The deal struck shows just how far Credit Suisse had got itself into financial problems. No money passed hands for the purchase. Instead, shareholders of Credit Suisse got 1 UBS share for every 22.48 shares in Credit Suisse.

Credit Suisse had been losing customers deposits at a significant rate since October 2022. This was made worse by the Silvergate, First Signature and Silicon Valley Banks all going under.

The worry for UBS was that taking on Credit Suisse could imperil their finances. As the combined banks hold wealth equal to 140% of Swiss GDP it was of tantamount importance that the newly enlarged UBS group didn’t fail. As a result, the Swiss authorities have set up a fund of $173 billion to cover loans and guarantees.  $9.7 billion has also been promised to cover the losses of unwinding the derivatives portfolio of Credit Suisse. The numbers are staggering.

AT1 Bonds

For those who bought Credit Suisse AT1 bonds the news is very bad. UBS would not take on the debts these bonds represented. They struck a deal whereby the government would decree the $17 billion worth of bonds as worthless.

As I mentioned in my previous post on the enfolding financial crisis, it is that the sudden hikes in interest rates caught many banks over-exposed to low yielding government bonds that were being devalued by new government bonds offering much higher returns indicative of the interest rate increases.

Knowing the percentage of funds sunk into these low yielding government bonds of a bank will tell you the extent of their financial woes. Analysts have already identified 30 other banks that could face huge liquidity issues if they have to sell these bonds at a loss to meet demands by depositors to withdraw their funds.

Not a Credit Suisse Bailout

Optics are everything when dealing with financial markets. If people perceive risk, they withdraw their investment. If they perceive opportunity, they invest their cash. It is thus crucial for the Swiss Banking Sector to spin Credit Suisse’s takeover as ‘a corporate acquisition’ by UBS rather than a ‘bail out’ brokered by the Swiss authorities. However, as we have seen, UBS has swapped shares to acquire Credit Suisse rather than pay cash. Moreover, they first gained assurances of a huge bailout fund for the likely eventuality many of Credit Suisse’s investments turn toxic. Especially the AT1 bonds which in a pre-emptory move to quash panic withdrawals have been written off.

The whole situation gives the impression of firefighting. The Swiss National Bank has pledged vast sums of money for the Credit Suisse bailout in the hope of stopping the rot. Other Global Systematically Important Banks will be paying careful attention to how the UBS Group performs going forward.

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  • Home
  • About
  • Podcast
    • Summaries
    • Articles
  • Invoice Finance
    • Basics
      • What is Invoice Finance?
      • What is Reverse Factoring?
      • What are Trade Receivables?
      • What is the Cash Conversion Cycle?
      • What is Days Inventory Outstanding?
      • What is Days Sales Outstanding?
      • What is Days Payable Outstanding?
    • Advanced
      • Invoice Validation and Fraud Detection
      • Reasons Why Invoice Finance is Better than a Bank Loan
      • How to Choose the Right Factoring Firm for Your Business
      • A Closer Look at Factoring Agreements
      • What is Trade Receivables Securitisation?
      • Breakdown of the Costs for Factoring
    • Factoring
      • Why Companies Use Invoice Factoring
      • What Companies are Suitable for Invoice Factoring?
      • Factoring and Invoice Discounting
      • How Factoring Works
      • Asset Based Lending
      • Is Factoring Right for Your Company?
      • Accounting for Factoring
      • How a Company Enters into a Factoring Agreement
      • The Costs Involved in Factoring
      • Changing Factoring Company
      • The Relationship Between the Factoring Company and the Debtor
      • Legal Aspects of a Factoring Company Pursuing Payment Through the Courts
      • Factoring in the Construction Industry
    • Fraud
      • Types of Invoice Fraud
      • How to Combat Invoice Fraud
    • E-Invoicing
      • Legal Status of Electronic Invoicing
      • The Benefits of E-Invoicing
      • Implementing an E-Invoice System
      • E-Invoicing Adoption in Mexico and The Rest of the World
  • Brokers
    • UK Brokerage Firms
  • Factoring Firms
    • Europe
      • UK
      • France
      • Germany
      • Italy
      • Spain
      • Holland
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      • Canada
    • Australasia
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  • Hi-Tech
    • Digital Platform/IT/Software Providers
    • UK Fintech
    • Articles
      • The 7 Types of AI and Their Implications for the Future
      • Transforming Trade Finance: The Role of AI
      • The Different Programming Languages Used in Fintech Companies and Financial Institutions
      • UK and US Authorities Intervene in AI Sector
      • Web3 Applications and the Future of Trade Finance
      • What is Web 3?
      • What Can Fintech do for You?
      • What is Fintech?
      • Tokenisation of Finance
      • Payment Services in the Invoice Finance Sector
      • What is ChatGPT and Why the Fuss?
  • Rating Agencies
  • Securitisation
    • Deal Arrangers
    • Book Runners
    • Articles
      • The Roles of Deal Arrangers and Book Runners in Securitization
      • What is Trade Receivables Securitisation?
      • The Appeal of Trade Receivables Securitisation
      • Risk Mitigation for Trade Receivables Securitisation
  • Legal
    • Law Firms
    • Articles
      • A Guide to Accounts Receivable Purchase Agreements and Invoice Discounting Agreements
      • The Challenges of KYC and AML Checks
      • What is The Model Law on Electronic Transferable Records (MLETR)?
      • Snapshot of Factoring Legal Schemes in England and Wales
      • How are UK Factoring Firms Regulated?
      • What is ISO20022 and Why is it Important?
  • Rates
  • Economy
    • Economic Indicators
    • Articles
      • The Current State of the UK Economy
      • Economic Forecast for the UK in 2023
      • Economic News for 2022
      • Financial Crisis or Not?
      • Credit Suisse Bailout
  • Credit Insurers
    • Credit Insurers
    • Articles
      • Credit Insurance in Trade Receivables Financing
      • The Benefits of Credit Insurance in Invoice Finance
      • Eligibility Requirements for Capital Relief by Using Credit Insurance
      • What are Export Credits and Country Risk Classifications?
      • How the War in Ukraine Affects the Price of Credit Insurance for Trade Finance
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    • Ripple (XRP) Wins Latest Battle with SEC
    • UK Passes Financial Services and Markets Act 2023
    • Latest about the UK Regulatory Proposal for Crypto Assets
    • How will MiCA (Markets in Crypto Assets) Regulation Affect Trade Finance and the Banking System?
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    • Interview with Kyriba
    • Interview with Orbian
    • Interview with Crossflow
    • Interview with Dancerace
    • Interview with BlackLine
    • Interview with Novicap Part One
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