Banking Crisis

Swiss Lawmakers Scrutinise Credit Suisse Takeover

Editorial Staff 12 April 2023

Swiss Lawmakers Scrutinise Credit Suisse Takeover

The UBS takeover of Credit Suisse last month was carried out without shareholder consent at either bank, and to some extent undertaken at the urging of the Swiss federal government and with a liquidity backup from the central bank. Lawmakers in the Alpine state have been debating the implications.

Swiss legislators yesterday met in special session to scrutinise the state-backed rescue purchase of Credit Suisse by rival UBS.

While there was little that politicians could do at this stage to block the takeover – carried out without shareholder approval – more than three weeks ago, reports focused on what lawmakers might attempt to push for reforms over regulations. The saga has reignited concerns that surfaced in the 2008 financial crisis of creating banks that could be “too big to fail.” 

The Swiss parliament meets for 12 weeks a year – making it one of the least active legislatures among developed countries – so the session on Credit Suisse is relatively unusual. 

The Swiss federal government has reportedly said that lawmakers can’t reverse previous support for the UBS takeover of Credit Suisse.

A potential flashpoint has been that holders of Additional Tier 1 bonds issued by Credit Suisse – a type of buffer capital – have seen their holdings wiped out under the terms of the takeover.

A report in the Wall Street Journal (11 April) said that wealthy Asian investors are among those hit by the write-downs by about $17 billion of this AT1 debt. (These bonds, which are relatively high-risk, were developed in the aftermath of the 2008 financial crisis as a way for banks to provide for capital buffer.) The WSJ article noted that some Asian investors also used leverage to buy AT1s – magnifying the risks of loss. Other investors, not just wealthy Asian individuals, have been hit and there are reports of potential lawsuits being prepared.

UBS chief executive Sergio Ermotti, who returned to the job after leaving in 2020 after a nine-year stint, and his colleagues face the onerous task of melding the banks together, and potentially cutting thousands of jobs around the world. The move, if successful, will leave Switzerland with only one universal bank, and will potentially create calls for more competition. It also raises the spectre of a bank that will, given the size of its balance sheet relative to the Swiss economy, be so large that it could be difficult to bail out if there were a crisis.

Separately, a report by Reuters yesterday said that Credit Suisse has already repaid some of the emergency liquidity provided almost a month ago by the Swiss National Bank.

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