The Silicon Valley Bank collapse deeply shook the markets and brought to light the fragilities of the market, with considerable interest rate and liquidity risks. The financial catastrophe for one of Switzerland's largest banks, Credit Suisse, began last week after shareholder Saudi National Bank (SNB) declared that it would not provide any more liquidity to the Swiss giant. Big shock considering that the Saudi Bank was the largest shareholder of the CS with a stake of almost 10% purchased last year. Hence the weakness of 'too big to fail' has re-emerged, a concept that is still feeble in markets that are poorly regulated and overwhelmed by multiple forms of volatility.
The Market Authority, the Swiss Confederation and the Swiss National Bank (SNB) immediately reacted because it soon became clear that the stability of the entire global financial center was at risk. In the first instance, the idea was to proceed with the nationalization of the CS Group, the so-called bail-in. A systematic solution, which would affect not only the shareholders, but a broader segment of investors. The bail-in, a hazard in an already formed black hole, would not have restored stakeholders' trust in the Swiss Group, which was also too badly damaged from a reputational point of view. A more wide-reaching alternative was opted for, a conscious choice made to protect depositors and the financial markets. During this turbulent weekend, the merger between UBS and Credit Suisse was announced, and it is expected that this transaction will give top executives time to restructure and reintegrate the right measures to overcome the crisis.
UBS is buying its biggest competitor Credit Suisse for CHF 3 billion, triggering one of the largest and most unexpected alliances. The acquisition took place, after several negotiations, for CHF 0.76 per share.
FINMA approved this deal. In particular, the authority reassures the stability of clients: all the banks' activities will continue and the protection of depositors is guaranteed. This is also thanks to the additional liquidity support provided by the federal government and the Swiss National Bank to mitigate the risk of insolvency. In particular, the liquidity provided by the Swiss National Bank is made available in the form of a loan covered by the guarantee of the federal government, which is responsible for issuing guarantees for potential losses on certain assets assumed by UBS in the transaction framework, provided that these losses do not exceed a certain threshold. In addition, a coordination of the ECB, Bank of England, FED, Bank of Canada, Bank of Japan with the Swiss National Bank (SNB) has been announced with the aim of improving the efficiency of dollar swap lines, thus providing more liquidity to the financial system, which is now severely compromised.
So, what scenario is in store for Switzerland? It is clear that the phase of mistrust experienced by Credit Suisse, with strong client outflows and concrete weaknesses in its balance sheets due to ineffective internal control systems, reflects a stagnant system that has not yet undergone radical change. The digitalization process so much 'realized' and promoted, which has also embraced the banking world, still seems to be at a primitive stage looking at the inefficiencies in controls and the lack of consistency in the banks' profitability performance. The current picture presents a sentiment concerned by several possible unfavorable conditions: loss of competitiveness of the country, bankruptcy of other big banks, bank run, employee cuts. With this merger, UBS establishes itself as the leading universal bank in Switzerland and strengthens its position worldwide.