Tag: Credit Suisse Group AG

Deutsche Bank beats expectations despite 27% drop in profit, jump in costs
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A Deutsche Bank AG branch in the financial district of Frankfurt, Germany, on Friday, May 6, 2022.

Alex Kraus | Bloomberg | Getty Images

Deutsche Bank on Wednesday reported a net profit of 763 million euros ($842 million) for the second quarter of 2023, narrowly beating expectations despite a 27% year-on-year decline.

The bank’s net profit attributable to shareholders slightly topped a prediction of 737 million euros in a Reuters poll of analysts, though marked a significant drop from the 1.046 billion euros reported in the same quarter of 2022, while net revenues rose 11% year-on-year to 7.4 billion euros.

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However, second-quarter non-interest expenses rose 15% year-on-year to 5.6 billion euros, with adjusted costs up 4% to 4.9 billion euros. Nonoperating costs includes 395 million euros in litigation charges and 260 million euros in “restructuring and severance related to execution of strategy.”

In its first-quarter report, the bank flagged job cuts for its non-client facing staff and reported a sharper-than-expected year-on-year fall in investment bank revenues.

Deutsche’s corporate and private banking divisions enjoyed a strong quarter with revenues up 25% and 11% year-on-year, respectively, benefiting from the higher interest rate environment. However, its businesses more closely tied to the financial market backdrop — the investment banking and asset management divisions — saw revenues fall 11% and 6%, respectively.

Deutsche Bank CFO James von Moltke told CNBC that this could be attributed to an unusually strong second quarter of 2022, as market volatility boosted trading volumes and revenues.

Cost savings

Speaking to CNBC’s Silvia Amaro on Wednesday, von Moltke said the bank had upped its target for cost savings from 2 billion euros to 2.5 billion euros in a bid to offset the impact of inflation, and was also making substantial business investments to “support future revenue growth,” invest in technology and improve its controls.

“So for us, it’s a balancing act between delivery on the expense objectives and some of those inflationary impacts. In recent quarters, we’ve succeeded very well, we’ve delivered on our guidance of costs essentially flat to the fourth quarter of last year,” von Moltke said.

“That’s something that we’re aiming to continue. We feel like the progress we’re making and those expense initiatives is considerable and accelerating.”

Wednesday’s result marked a 12th straight quarterly profit since the German lender completed a sweeping restructuring plan that began in 2019 with the aim of cutting costs and improving profitability.

“In the first half of 2023 we again demonstrated good growth momentum across a diversified business portfolio, underlying earnings power and balance sheet resilience. This puts us on a good track towards our 2025 financial targets,” said Deutsche Bank CEO Christian Sewing.

“Our planned share repurchases enable us to deliver on our goals to distribute capital to our shareholders.”

Deutsche Bank announced on Tuesday that it plans to initiate up to 450 million euros of share buybacks this year, starting in August, and expects total capital returned to shareholders through dividends and buybacks in 2023 to exceed 1 billion euros, compared with around 700 million in 2022.

Other highlights for the quarter:

Total revenues stood at 7.4 billion euros, up from 6.65 billion in the second quarter of 2022.

Total non-interest expenses were 5.6 billion euros, up 15% from 4.87 billion a year earlier.

The provision for credit losses was 401 million euros, up from 233 million in the same quarter of last year.

Common equity tier one CET1 capital ratio, a measure of bank liquidity, rose to 13.8% from 13.6% in the previous quarter and 13% a year ago.

Return on tangible equity stood at 5.4%, down from 7.9% a year ago.

Benefiting from the Credit Suisse collapse

Deutsche Bank previously suggested it stood to gain from the collapse of Credit Suisse and its takeover by Swiss rival UBS. CFO von Moltke told CNBC on Wednesday that some of these benefits may already be materializing.

“All of these things take time. Certainly, on the hiring front, we’ve been able to attract talent as the fallout from the merger takes place, in two areas of our business in particular: wealth management, where we’ve been able to attract around 30 relationship managers over the past several months, and also in our origination and advisory franchise,” von Moltke said.

“It’s obviously early days to see the revenue impact of those hires, but we’re very confident that we’ve been able to attract strong talent to the platform and fill in gaps, where we can now take advantage more fully of our own platform and market presence.”
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July 25, 2023
UBS CEO Sergio Ermotti on Credit Suisse takeover: It allows us to compete better

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UBS CEO Sergio Ermotti joins 'Squawk Box' to discuss the bank's takeover of its rival Credit Suisse, the state of the banking industry, and more.

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June 12, 2023
Watch CNBC’s full interview with UBS CEO Sergio Ermotti

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UBS CEO Sergio Ermotti joins ‘Squawk Box’ to discuss the bank’s takeover of its rival Credit Suisse, the state of the banking industry, and more.

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Mon, Jun 12 20237:48 AM EDT

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June 12, 2023
UBS says it has completed the takeover of stricken rival Credit Suisse

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UBS expects to complete its takeover of Credit Suisse “as early as June 12”, which will create a giant Swiss bank with a balance sheet of $1.6 trillion.

Fabrice Coffrini | Afp | Getty Images

Swiss bank UBS on Monday said that it formally completed the takeover of its rival Credit Suisse.

In an open letter, UBS board chair Colm Kelleher and newly-returned CEO Sergio Ermotti said, “We will bring together the collective expertise, scale and wealth management leadership of both UBS and Credit Suisse to create an even stronger combined firm.”

The letter continues that there will be “challenges” as well as “great opportunity,” as the bank commits to “never compromise on UBS’s strong culture, conservative risk approach or quality service.”

UBS agreed to the $3.2 billion deal in March, with Swiss regulators playing a key role in the acquisition amid worries that severe losses at Credit Suisse would destabilize the banking system.

The enlarged UBS will have a balance sheet of $1.6 trillion and a workforce of 120,000.

Regulators said Friday that they would cover losses of up to 9 billion Swiss francs ($10 billion) after UBS incurs the first 5 billion Swiss francs as part of the transaction, as it absorbs a portfolio that does not entirely “fit its business and risk profile.”

Following the merger, Credit Suisse and its American Depositary Shares will be delisted from the SIX Swiss Exchange and New York Stock Exchange, with shareholders receiving one UBS share for every 22.48 Credit Suisse shares held.

The takeover, which follows multiple scandals and years of share price decline at Credit Suisse, controversially wiped out the 16 billion Swiss francs ($17 billion) worth of assets of the bank’s AT1 bond holders.

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June 11, 2023
UBS inks pact with Swiss government as Credit Suisse deal may close next week

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UBS said Friday that it’s signed a loss protection agreement with the Swiss government covering up to 9 billion francs ($10 billion) of losses once the takeover of Credit Suisse is completed.

The finalized deal sets the stage for the merger of the Swiss banks to be completed as early as June 12.

Terms call for the guarantee to only be implemented if UBS takes 5 billion francs of losses from what are called non-core assets of Credit Suisse.

The protection applies to roughly 3% of the combined assets of the merged bank. UBS is paying the Swiss government an upfront fee of 40 million francs, as well as an annual maintenance fee of 0.4% and a risk premium depending on how much of the guarantee is used. UBS does have the right to terminate the guarantee at any time.

The per-share value of the UBS offer
UBS,
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UBSG,
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has climbed slightly since the deal was first announced, as it’s now worth 0.81 francs per share, valuing Credit Suisse at 3.2 billion francs, or $3.6 billion.

UBS agreed to buy its rival for an initially announced 3 billion francs after Credit Suisse
CS,
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CSGN,
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was unable to stem outflows from its wealthy clients.

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June 9, 2023
UBS and the Swiss government sign loss protection agreement over Credit Suisse takeover

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Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.

Fabrice Coffrini | AFP | Getty Images

UBS and the Swiss government announced Friday that they had signed a loss protection agreement which will come into effect once the takeover of Credit Suisse is completed.

The agreement will see the Swiss government cover losses of up to 9 billion Swiss francs ($10 billion) following UBS’ acquisition of its rival.

“As part of the agreement, the Swiss government guarantees losses of up to CHF 9bn if realized on a designated portfolio of Credit Suisse non-core assets once UBS bears the first CHF 5bn of any realized losses,” UBS said in a statement.

“UBS will manage these assets in a prudent and diligent manner and intends to minimize any losses and maximize value realization on these assets.”

The acquisition of Credit Suisse is expected to take place as early as June 12, UBS said.

It comes after the Swiss banking rivals agreed a $3.2 billion takeover deal in March amid volatility in the global banking sector, as three U.S. banks collapsed at the time.

Credit Suisse shares cratered through early March, with years of scandals, losses and alleged mismanagement coming to a head when its largest shareholder, the Saudi National Bank, said it was not able to provide any more cash to the bank because of regulatory restrictions.

The merger of the two banking juggernauts has been controversial in many quarters, enraging Credit Suisse shareholders and bondholders as well as raising competition concerns.

UBS Group shares were flat at 9:22 a.m. London time.

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June 9, 2023
Why wealthy Americans love UBS, the secretive Swiss banking giant

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With its $3.2 billion acquisition of Credit Suisse, UBS is poised to climb the ranks of global mega banks.

UBS is no stranger to blockbuster mergers. The modern company is comprised of over 370 legacy firms, including former domestic rivals. Amid major wars, Switzerland has remained stable and neutral, becoming a safe haven for global wealth.

Today, international wealth management is the heart of UBS’s operation. With over $5 trillion in invested assets post-merger, more than half of the bank’s customers are based in the United States. Experts believe this is due to the unique levels of discretion offered by Swiss law. Bankers in Switzerland are bound to protect many client details, even when pressed by foreign authorities.

“You can access their operations in Singapore, in New York, in more exotic places. But at the core, they will not be subject to some political influence because the Swiss government is leaving them alone, or at least that’s the perception,” said Nicolas Véron, a senior fellow at both the Peterson Institute for International Economics in Washington, D.C., and the Bruegel think tank in Brussels.

In recent years, both UBS and Credit Suisse have faced pressure from U.S. authorities to end what has been criticized as dubious business practices. For example, in the 2010s, thousands of instances of misconduct were uncovered at UBS in an international interest rate manipulation probe. Additionally, U.S. senators claim that Credit Suisse maintained accounts linked to Nazi clients as recently as 2020.

Global watchdogs have worried for years that banks like UBS have become too big to fail. A sudden and rapid flight of depositors from Credit Suisse brought those fears to life. The Swiss National Bank pledged over $100 billion in liquidity support to broker UBS’s rapid takeover of Credit Suisse.

In the deal, Credit Suisse shareholders expect to trade in 22.48 shares for 1 UBS share. Some bondholders plan to challenge the deal in court.

“By and large, what the Swiss government mostly did is impose losses on creditors and shareholders of Credit Suisse,” said Véron.

UBS Group AG said the acquisition may make the bank more competitive globally, and that it is prepared to manage that increased complexity.

Watch the video above to learn more about UBS’s future as Switzerland’s top bank.

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June 2, 2023
European banks are stronger than their U.S. rivals, analysts say. Here’s why

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The Faro office building at the Banco Santander SA headquarters on Thursday, Feb. 2, 2023.

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European banks are looking stronger and more attractive than their U.S. counterparts on many metrics, according to officials and analysts speaking at the Institute of International Finance conference in Brussels this week, who add that regulation and collaboration is still needed to boost growth in the region.

The biggest bank in the U.S. is worth what the top nine or 10 European banks are due to weaker growth and less profitability since the 2008 financial crisis, Ana Botín, executive chair of Spain’s Santander Group, told CNBC at the event on Tuesday.

However, the top European banks have better levels of credit default swaps, a form of insurance for a company’s bondholders against default, “which means that fixed income investors think the risk of our debt is lower than the best banks in the U.S.,” Botín added.

The recent volatility that led to the sale of Credit Suisse to UBS was not evidence of a systemic banking crisis, she said, but rather mismanagement and liquidity issues at specific banks.

“We are in a very strong position in terms of capital, liquidity supervision, protection of our customers’ data. But we also need a bit more capacity to support growth so we can be more profitable,” she said.

“What we need is a fundamental rethink of what do we want banks to be in the new economy in a world that needs growth. And finding that balance is really important between being prudent, we’re not saying that we should go back on that, but also being able to finance growth,” Botín continued, adding this would be a key theme at the IIF’s conference.

European banks are “safer, stronger, cheaper” than U.S. ones said Davide Serra, chief executive officer of Algebris Investments, who stressed the higher liquidity ratio of European banks — around 160% — versus 120% in the U.S.

“In a way, banks in the U.S. have been optimizing their deposit base more. And now with the Fed [Federal Reserve] keeping higher interest rates, people just want to get paid on their deposits. So they have options with money markets, or with moving cash around,” he said.

“At the same time in the U.S., people are being reminded that, you know, not all banks are born equal. And just because you have a sign called bank, you’re not as safe, as you know, JPMorgan, or Morgan Stanley.”

That will lead to further consolidation in the U.S., he said, following the series of regional bank collapses this year, with banks considered safe benefitting.

“Overall, I think the opportunity is clear. For the strong banks in Europe and in the U.S., with Europe much, much more attractive, there has been zero deposit outflow, zero issue … And hence, to be honest, after 10 years of restructuring, Europe I think is the place to be.”

Banking union delay

José Manuel Campa, chair of the European Banking Authority, noted low valuations of European banks, but said these had been improving amid wider sector turmoil and as higher interest rates boost their returns.

“I think that as interest rates rise, if [European banks] continue to show that their business model is sustainable, we should see enhancements over the medium term on those valuations as well,” he said.

For Campa, any further consolidation in European banking must be about creating better banks and “go along to fostering a more integrated single market in the European Union so we can have cross-border banking and more efficient services to European customers.”

The EU has a long-delayed plan to further develop its banking union, a set of laws introduced in 2014 to strengthen banks, to create a common system in deposit insurance and other areas. Talks are also ongoing over a Capital Markets Union.

Both Botín and Campa said pushing these tricky negotiations forward was important for the future of the sector, with Botín saying they could help boost European growth.

“There is one thing that we could do in Europe to have higher growth, which is securitization,” she said.

Creating new rules on securitization, the creation of tradeable securities from a group of assets — which remains a contested subject following the subprime mortgage crisis — is key to the EU’s proposed Capital Markets Union.

“The securitization market in Europe is 6% the size of the American market. Banks are no longer the best holders of credit,” Botín said.

“In many cases we can originate, we can help our customers raise that capital and then place it with other funds and other parties that are better holders. So there are a number of things around Capital Markets Union, for example, that could move faster and help higher growth,” Botín said.

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May 23, 2023
Global debt nears record highs as rate hikes trigger ‘crisis of adaptation,’ top trade body says

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HIROSHIMA, JAPAN – MAY 17: People walk beneath a banner promoting the Group of 7 (G7) summit at a shopping street on May 17, 2023 in Hiroshima, Japan. The G7 summit will be held in Hiroshima from 19-22 May. (Photo by Tomohiro Ohsumi/Getty Images)

Tomohiro Ohsumi | Getty Images News | Getty Images

The global debt pile grew by $8.3 trillion in the first quarter to a near-record high of $305 trillion as the global economy faced a “crisis of adaptation” to rapid monetary policy tightening by central banks, according to a closely-watched report from the Institute of International Finance.

The finance industry body said the combination of such high debt levels and rising interest rates has driven up the cost of servicing that debt, triggering concerns about leverage in the financial system.

Central banks around the world have been hiking interest rates for over a year in a bid to rein in sky-high inflation. The U.S. Federal Reserve earlier this month lifted its fed funds rate to a target range of 5%-5.25%, the highest since August 2007.

“With financial conditions at their most restrictive levels since the 2008-09 financial crisis, a credit crunch would prompt higher default rates and result in more ‘zombie firms’ — already approaching an estimated 14% of U.S.-listed firms,” the IIF said in its quarterly Global Debt Monitor report late Wednesday.

The sharp increase in the global debt burden in the three months to the end of March marked a second consecutive quarterly increase following two quarters of steep declines during last year’s run of aggressive monetary policy tightening. Non-financial corporates and the government sector drove much of the rebound.

“At close to $305 trillion, global debt is now $45 trillion higher than its pre-pandemic level and is expected to continue increasing rapidly: Despite concerns about a potential credit crunch following the recent turmoil in the banking sectors of the U.S. and Switzerland, government borrowing needs remain elevated,” the IIF said.

The Washington, D.C.-based organization said aging populations, rising health care costs and substantial climate finance gaps are exerting pressure on government balance sheets. National defense spending is expected to increase over the medium term due to heightened geopolitical tensions, which would potentially affect the credit profile of both governments and corporate borrowers, the IIF projected.

“If this trend continues, it will have significant implications for international debt markets, particularly if interest rates remain higher for longer,” the report noted.

Total debt in emerging markets hit a new record high of more than $100 trillion, around 250% of GDP, up from $75 trillion in 2019. China, Mexico, Brazil, India and Turkey were the largest upward contributors.

In developed markets, Japan, the U.S., France and the U.K. posted the sharpest increases over the quarter.

Banking turmoil and a ‘crisis of adaptation’

The rapid monetary policy tightening exposed frail liquidity positions in a number of small and mid-sized banks in the U.S. and led to a series of collapses and bailouts in recent months. The ensuing market panic eventually spread to Europe and forced the emergency sale of Swiss giant Credit Suisse to UBS.

The IIF suggested that corporations have undergone a “crisis of adaptation” to what it termed a “new monetary regime.”

“Although recent bank failures appear more idiosyncratic than systemic — and U.S. financial institutions carry much less debt (78% of GDP) than in the run-up to the 2007/8 crisis (110% in 2006) — fear of contagion has prompted significant deposit withdrawals from U.S. regional banks,” the IIF said.

“Given the central role of regional banks in credit intermediation in the U.S., worries about their liquidity positions could result in a sharp contraction in lending to some segments, including underbanked households and businesses.”

This contraction of credit conditions could particularly affect small businesses, the IIF said, along with causing higher default rates and more “zombie firms across the board.”

Zombie firms are companies with earnings that are sufficient to allow it to continue operating and pay the interest on its debt, but not to pay off the debt, meaning any cash generated is immediately spent on debt. The company is therefore “neither dead nor alive.”

“We estimate that around 14% of U.S. companies can be considered zombies, with a substantial portion of these in the healthcare and information technology sectors.”

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May 18, 2023
UBS expects $17 billion hit from Credit Suisse rescue, flags hasty due diligence

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Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March.

Fabrice Coffrini | AFP | Getty Images

UBS estimates a financial hit of around $17 billion from its emergency takeover of Credit Suisse, according to a regulatory filing, and said the rushed deal may have affected its due diligence.

In a new filing with the U.S. Securities and Exchange Commission (SEC) late Tuesday night, the Swiss banking giant flagged a total negative impact of around $13 billion in fair value adjustments of the new combined entity’s assets and liabilities, along with a potential $4 billion hit from litigation and regulatory costs.

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However, UBS also expects to offset this by booking a one-off $34.8 billion gain from so-called “negative goodwill,” which refers to the acquisition of assets at a much lower cost than their true worth.

The bank’s emergency acquisition of its stricken domestic rival for 3 billion Swiss francs ($3.4 billion) was brokered by Swiss authorities over the course of a weekend in March, with Credit Suisse teetering on the brink of collapse amid massive customer deposit withdrawals and a plummeting share price.

In the amended F-4 filing, UBS also highlighted that the short time frame under which it was forced to conduct due diligence may have affected its ability to “fully evaluate Credit Suisse’s assets and liabilities” prior to the takeover.

Swiss governmental authorities approached UBS on March 15 while considering whether to initiate a sale of Credit Suisse in order to “calm markets and avoid the possibility of contagion in the financial system,” the filing revealed. The bank had until March 19 to conduct its due diligence and return with a decision.

“If the circumstances of the due diligence affected UBS Group AG’s ability to thoroughly consider Credit Suisse’s liabilities and weaknesses, it is possible that UBS Group AG will have agreed to a rescue that is considerably more difficult and risky than it had contemplated,” UBS said in the Risk Factors section of the filing.

Though this is highlighted as a potential risk, UBS CEO Sergio Ermotti told CNBC last month that the Credit Suisse deal was not risky and would create long-term benefits.

The most controversial aspect of the deal was regulator FINMA’s decision to wipe out around $17 billion of Credit Suisse’s additional tier-one (AT1) bonds before shareholdings, defying the conventional order of write downs and resulting in legal action from AT1 bondholders.

Tuesday’s filing showed the UBS Strategy Committee began evaluating Credit Suisse in October 2022 as its rival’s financial situation worsened. The long-struggling lender experienced massive net asset outflows toward the end of 2022 on the back of liquidity concerns.

The UBS Strategy Committee concluded in February that an acquisition of Credit Suisse was “not desirable,” and the bank continued to conduct analysis of the financial and legal implications of such a deal in case the situation deteriorated to the point that Swiss authorities would ask UBS to step in.

UBS last week announced that Credit Suisse CEO Ulrich Koerner will join the executive board of the new combined entity once the deal legally closes, which is expected within the next few weeks.

The group will operate as an “integrated banking group” with Credit Suisse retaining its brand independence for the foreseeable future, as UBS pursues a phased integration.

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May 17, 2023
UBS announces Credit Suisse CEO Koerner to join board after emergency rescue

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Ulrich Koerner, chief executive officer of Credit Suisse Group AG, during a Bloomberg Television interview in London, UK, on Tuesday, March 14, 2023.

Hollie Adams | Bloomberg | Getty Images

UBS on Tuesday announced that Credit Suisse CEO Ulrich Koerner will join the executive board of the new joint entity once its emergency purchase of the stricken bank completes.

The Swiss giant said the legal close of the acquisition is expected within the next few weeks, and the combined entity will operate as a “consolidated banking group.”

The Credit Suisse brand will operate independently for the “foreseeable future” as UBS integrates the business in a “phased approach,” the bank said in a statement.

Swiss authorities brokered the controversial emergency rescue of Credit Suisse by UBS for 3 billion Swiss francs ($3.37 billion) over the course of a weekend in March, as a crisis of confidence among depositors and shareholders threatened to topple the 167-year-old institution.

UBS confirmed that it will initially manage the two separate companies upon the closure of the deal, with each institution continuing to operate its own subsidiaries and branches while the UBS board of directors and executive board will hold overall responsibility for the consolidated group.

Koerner, who took over the ailing Credit Suisse in July 2022 and immediately launched a massive strategic overhaul aimed at reversing the bank’s chronic loss-making and risk management failures, will join the board, UBS confirmed.

“With his knowledge of both organizations, he will be responsible for ensuring Credit Suisse’s operational continuity and client focus, while supporting the integration process,” UBS said.

UBS veteran Todd Tuckner will become chief financial officer for the group, taking over from Sarah Youngwood, who has decided to step down after the transaction closes.

The combined firm will operate with five business divisions, seven functions and four regions in addition to Credit Suisse, with each represented by a board member reporting to UBS CEO Sergio Ermotti.

Ermotti said this was a “pivotal moment for UBS, Credit Suisse and the entire banking industry.”

“Together we will solidify and represent the Swiss model for finance around the world, one that is capital-light, less reliant on taking risk and anchored by stability and high-touch service,” Ermotti said in a statement.

“Adding Credit Suisse to UBS’s highly capital-accretive business model, diversified revenue streams, disciplined risk management and balance sheet for all seasons will benefit our clients, employees, investors, the economies we serve and the wider financial system.”

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May 8, 2023
Swiss National Bank to face Credit Suisse and climate protests at fraught AGM

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The Swiss National Bank has come into the spotlight following its assistance in UBS’ takeover of Credit Suisse.

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The Swiss National Bank will hold its annual general meeting in Bern on Friday against a backdrop of protest over its action on climate change and its role in the emergency sale of Credit Suisse to Swiss rival UBS.

The central bank played a key role in brokering the rescue of Credit Suisse over the course of a chaotic weekend in March, as a flight of deposits and plummeting share price took the 167-year-old institution to the brink of collapse.

The deal remains mired in controversy and legal challenges, particularly over the lack of investor input and the unconventional decision to wipe out 15 billion Swiss francs ($16.8 billion) of Credit Suisse AT1 bonds.

The demise of the country’s second-largest bank fomented widespread discontent and severely damaged Switzerland’s long-held reputation for financial stability. It also came against a febrile political backdrop, with federal elections coming up in October.

While the SNB will no doubt face questions and grievances from shareholders about the Credit Suisse situation on Friday, the country’s network of climate activists will also be seeking to use the central bank’s unwanted spotlight to challenge its investment policies.

Unlike many major central banks, the SNB operates publicly-traded company, with just over half of its roughly 25 million Swiss franc ($28.1 million) share capital held by public shareholders — including various Swiss cantons (states) and cantonal banks — while the remaining shares are held by private investors.

A shareholder walks past a giant inflate balloom during a protest by climate activists ahead of the general meeting of shareholders of UBS bank in Basel, on April 5, 2023, following the takeover by UBS of Credit Suisse hastily arranged by the Swiss government on March 19 to prevent a financial meltdown. (Photo by Fabrice COFFRINI / AFP) (Photo by FABRICE COFFRINI/AFP via Getty Images)

Fabrice Coffrini | Afp | Getty Images

More than 170 climate activists have now purchased a SNB share, according to the SNB Coalition, a dedicated pressure group spun out of Alliance Climatique Suisse — an umbrella organization representing around 140 Swiss environmental campaign groups.

Around 50 of the activist shareholders will be in attendance on Friday, and activists plan to make around a dozen speeches on stage at the AGM, climate campaigner Jonas Kampus told CNBC on Wednesday. Protests will also be held outside the event.

The group is calling for the SNB to dispose of its stock holdings of “companies that cause serious environmental damage and/or violate fundamental human rights,” pointing to the central bank’s own investment guidelines.

In particular, campaigners have highlighted SNB holdings in Chevron, Shell, TotalEnergies, ExxonMobil, Repsol, Enbridge and Duke Energy.

Members of a Ugandan community objecting to TotalEnergies’ East African Crude Oil Pipeline, will also attend on Friday, with one planning to speak on stage directly to the SNB directorate.

As well as a full exit from fossil fuel investments, activists are demanding that the SNB implement the “one for one rule,” — a capital requirement designed to prevent banks and insurers benefiting from activities that are detrimental for the transition to net zero.

In this context, the SNB would be required to set aside one Swiss franc of its own funds to cover potential losses for each franc allocated to financing new fossil fuel exploration or extraction.

Ahead of the AGM, the central bank declined on legal grounds to schedule three motions tabled by the activists, and said on Wednesday that it would not comment on protest plans, instead directing CNBC to its formal agenda. Yet Kampus suggested that just the process of submitting the motions itself had helped expand public and political awareness of the issues.

“From all sides, there is public pressure and also political pressure that the SNB needs to change things. At this moment, the SNB is really far behind in terms of their actions taken compared to other central banks,” Kampus told CNBC via telephone, adding that the SNB takes a “very conservative view” of its mandate regarding price stability and financial stability, which is “very narrow.”

The shareholders’ cause is also backed by a motion in parliament, with support from lawmakers ranging from the Green Party to the Centre [center-right party], which demands an extension of the SNB’s mandate to cover climate and environmental risks.

“While other central banks around the world are going well beyond the steps taken by the SNB in this respect — the SNB has repeatedly taken the position that its mandate does not give it sufficient leeway to take climate risks fully into account in its decisions and monetary policy instruments,” reads the motion, filed on March 16 by Green Party lawmaker Delphine Klopfenstein Broggini.

“The present parliamentary initiative is intended to ensure this leeway and to make it clear that the SNB must take climate risks into account when conducting monetary policy.”

The motion argues that climate risks are “classified worldwide as significant financial risks that can endanger financial and price stability,” concluding that it is in “Switzerland’s overall interest that the SNB proactively address these issues” as other central banks are seeking to do.

Kampus and his fellow activists hope the national focus on the SNB after the Credit Suisse crisis provides fertile ground to advance concerns about climate risk, which he said poses a risk to the financial system that is “several times larger” than the potential fallout from Credit Suisse’s collapse.

“We feel that there is also a window of opportunity on the SNB side in that they maybe this time are a bit more humble, because they obviously also have done some things wrong in terms of the Credit Suisse crash,” Kampus said.

He noted that the central bank has always asserted that climate risk was incorporated into its models and that there was “no need for further exchange with the public of further transparency.”

“Very central to the SNB’s work is that the public just needs to trust them. Trust is something that is very important to the central bank, and to demand trust from the public without leading up to it or supporting it with further evidence that we can trust them in the long run is quite scary, especially when we don’t know what their climate model is,” he said.

The SNB has long argued that its passive investment strategy, which invests in global indexes, is part of its mandate to remain market neutral, and that it is not for the central bank to engage in climate policy. Activists hope mounting political pressure will eventually force a change in legislation to broaden the SNB’s mandate to accommodate climate and human rights as risks to financial and price stability.

UBS and Credit Suisse also faced protests from climate activists at their respective AGMs earlier this month over investment in fossil fuel companies.

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April 27, 2023
Barclays posts 27% rise in net profit for the first quarter, beats expectations

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The headquarters of Barclays Plc beyond the West India Quay Docklands Light Railway station in the Canary Wharf financial district in London, UK, on Monday, March 20, 2023.

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LONDON — Barclays on Thursday reported net profit of £1.78 billion ($2.2 billion) for the first quarter, beating expectations and coming in 27% higher year-on-year.

A consensus Reuters poll of analysts forecast net profit at £1.432 billion.

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On a branch basis, income from the bank’s consumer, cards and payments division rose 47%, compensating for just 1% growth in its corporate and investment bank division. It partly attributed this to its acquisition of retailer Gap’s credit card portfolio.

The income of Barclays UK was up 19% due to improved net interest income.

The bank also flagged £500 million in credit impairment charges, which it said resulted from higher U.S. card balances and the “continuing normalisation anticipated in US cards delinquencies.”

Impairment charges are used by businesses to write off assets. In its previous results, Barclays said it set aside £1.2 billion for such charges last year, as its customers struggled with cost pressures.

Barclays shares were up 4.3% at 8:55 a.m. in London.

Analysts at Jefferies said the “robust” results suggested scope for consensus upgrades, with “not a lot to nitpick.”

On track

Barclays said it “remains on track to deliver its 2023 targets, with all performance metrics in line with or ahead of guidance” at the first quarter.

Chief Executive Officer C. S. Venkatakrishnan described it as a “strong” quarter, with income up 11% to £7.2 billion.

“The momentum across the group allows us to maintain a robust capital position, deliver attractive returns to shareholders, and support our customers and clients through an uncertain economic environment,” he said in a statement.

The results come after a turbulent period for the global banking sector, which saw the collapse of U.S.-based Silicon Valley Bank and several other regional lenders in early March and the rapid takeover of Credit Suisse by Swiss rival UBS.

Earlier on Thursday, Deutsche Bank reported first-quarter net profit of 1.158 billion euros ($1.28 billion), coming above a consensus forecast of 864.54 million euros.

The bank was briefly swept up in the banking volatility of last month, when its stock plunged and credit default swaps — a form of insurance for a company’s bondholders against its default — rose sharply.

Market watchers are once more focusing on U.S. banks this week, after First Republic revealed heavier-than-expected deposit outflows in the first quarter, with its stock dropping to a record low.

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April 26, 2023
Deutsche Bank logs 11th straight quarterly profit, reveals job cuts
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A Deutsche Bank AG branch in the financial district of Frankfurt, Germany, on Friday, May 6, 2022.

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Deutsche Bank on Thursday reported a net profit of 1.158 billion euros ($1.28 billion) for the first quarter, emerging from a turbulent month that saw it swept up in market fears of a global banking crisis.

Net profit attributable to shareholders was comfortably above a consensus forecast of 864.54 million euros produced by a Reuters poll of analysts, and up from 1.06 billion euros for the first quarter of 2022.

This marked an 11th straight quarter of profit for the German lender after the completion of a sweeping restructuring plan that began in 2019 with the aim of cutting costs and improving profitability.

“Our first quarter results demonstrate the relevance of our Global Hausbank strategy to our clients and underscore that we are well on track to meeting or exceeding our 2025 targets,” said CEO Christian Sewing.

“We aim to accelerate execution of our strategy through a number of measures announced today: raising our ambitions for operational efficiency, boosting capital efficiency to drive returns and support shareholder distributions, and seizing opportunities to outperform on our revenue growth targets.”

The Thursday report nevertheless showed deposits fell over the course of the quarter to 592 billion euros from 621.5 billion euros at the end of 2022. The bank said the decline was “driven by increased price competition, normalization from elevated levels in the prior two quarters and market volatility at the end of the quarter.

Deutsche’s corporate bank net revenues came in at 2 billion for the quarter, up 35% year-on-year and the highest quarterly figure since the launch of its transformation program. Net interest income was the main driver, growing 71%.

However, the bank also flagged job cuts for non-client facing staff and reported a sharper-than-expected 19% year-on-year fall in investment bank revenues year-on-year.

“The bank is currently implementing additional efficiency measures across the front office and infrastructure,” it said in the report.

“These include strict limitations on hiring in non-client facing areas, focused reductions in management layers, streamlining the mortgage platform and further downsizing of the technology centre in Russia.”

Other data highlights for the quarter:

Revenues came in at 7.7 billion euros, up from 7.33 billion euros in the first quarter of 2022, despite what the bank called “challenging conditions in financial markets” during the quarter.

Provision for credit losses stood at 372 million euros, compared to 292 million euros a year ago.

CET 1 capital ratio, a measure of bank solvency, stood at 13.6%, up from 12.8% a year ago an 13.4% the previous quarter.

The beat on earnings expectations follows a 1.8 billion euro net profit for the final quarter of 2022, which vastly outstripped expectations and brought the bank’s annual net income to 5 billion euros. However, uncertainty around the macroeconomic outlook, along with weaker-than-expected investment bank performance, kept traders cautious on the company’s stock.

The market turmoil triggered by the collapse of U.S.-based Silicon Valley Bank in early March, which eventually resulted in the emergency rescue of Credit Suisse by UBS, briefly engulfed Deutsche Bank late last month despite its strong financial position.

Its Frankfurt-listed stock plummeted, while credit default swaps — a form of insurance for a company’s bondholders against its default — soared, prompting German Chancellor Olaf Scholz to publicly dispel market concerns.

‘Natural beneficiary’ of Credit Suisse demise

CFO James von Moltke told CNBC on Thursday that the March banking turmoil had enabled the bank to prove its mettle to a skeptical market.

“It was an interesting market environment in March, for sure. We were tested, and I think the silver lining of the test is we passed, and I think we passed with flying colors,” he said.

“The market was looking for vulnerabilities in banks with this surprise out of the U.S. regional banking sector. It was looking for securities losses, interest rate mismanagement issues, commercial real estate exposures, and many other sort of features.”

He suggested that, in scrutinizing Deutsche Bank, market participants saw a strong and profitable business model, stable balance sheet and deposit base, a “very moderate” and “well underwritten” commercial real estate book and “no near-term financing needs.”

“So across the various dimensions, when the market took a good look at us, what they saw was a stable, well-run well-risk managed bank,” von Moltke told CNBC’s Annette Weisbach.

In light of the emergency rescue of Credit Suisse by UBS, von Moltke also suggested that Deutsche Bank would be a “natural beneficiary of fallout” from the stricken Swiss lender’s demise.

“We admire the management team at UBS and we think that that competitor will be formidable with the passage of time but equally, a concentration of the banking relationships with now one provider for many of their clients is something that you’ expect to see them diversify,” he said.

“And we think we’re a natural destination for some of their clients, some of their people, some of the business, and I think we’re well-positioned to profit from that opportunity.”
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April 26, 2023
UBS net profit drops 52% in the first quarter due to hit from U.S. legal battle
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UBS reported its first results since the deal to buy Credit Suisse.

Fabrice Coffrini | Afp | Getty Images

UBS reported a 52% annual drop in net profit on Tuesday amid a legacy litigation matter, but maintained it is a “source of stability” for its clients during periods of high uncertainty.

These are the bank’s first results since announcing its takeover of rival Credit Suisse.

UBS said net profit came in at $1.03 billion for the first quarter, coming in well below analyst expectations of a net profit near $1.75 billion for the period, according to Refinitiv.

The hit in net income came from increased provisions of $665 million following a U.S. residential mortgage-backed securities litigation matter.

Speaking to CNBC’s Geoff Cutmore, UBS CEO Sergio Ermotti — who resumed his post on April 5 — said, “We are in advanced discussions. Hopefully we can close this 15-year old chapter very soon.”

Ermotti also described the latest results as “very solid.”

“We saw some inflows coming from Credit Suisse, but, most importantly, we continue to see even after the transaction, we saw inflows, so the demonstration that our clients believe we are a source of stability.” he told CNBC.

“We are part of the solution and not part of the problem,” he added.

Here are other highlights of the quarter:

Revenues reached $8.75 billion vs 9.38 billion a year ago

Operating expenses were $7.2 billion from $6.6 billion a year ago

CET 1 capital ratio, a measure of bank solvency, came in at 13.9% vs 14.1% a year ago

The lender also said that it attracted $28 billion in net new money in its global wealth management unit, of which $7 billion were registered in the last 10 days of March — after the announcement of its acquisition of Credit Suisse.

Credit Suisse Deal

UBS shares have jumped more than 10% since the news that it was buying its embattled Swiss competitor last month. At the time, UBS said that the deal, brokered by Swiss regulators, would create a “leading global wealth manager” with more than $5 billion in total invested assets.

However, analysts at Barclays said that the market is “significantly underestimating” the complexity of integrating Credit Suisse within UBS, Reuters reported. Ermotti told CNBC on Tuesday that the merger should be completed within the second quarter.

“In the next couple of weeks I will redefine our target operating model for the future, (I) also come out with some organizational announcements and clarity,” he said, adding that the merger with Credit Suisse is not a “risky” transaction and will deliver for shareholders.
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April 24, 2023
Credit Suisse logged asset outflows of more than $68 billion during first-quarter collapse

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A sign of Credit Suisse bank is seen on a branch building in Geneva, on March 15, 2023.

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Credit Suisse on Monday revealed that it suffered net asset outflows of 61.2 billion Swiss francs ($68.6 billion) during the first-quarter collapse that culminated in its emergency rescue by domestic rival UBS.

The stricken Swiss lender posted a one-off 12.43 billion Swiss franc profit for the first quarter of 2023, due to the controversial write-off of 15 billion Swiss francs of AT1 bonds by the Swiss regulator as part of the deal. The adjusted pre-tax loss for the quarter came in at 1.3 billion Swiss francs.

Swiss authorities brokered the controversial 3 billion Swiss franc rescue over the course of a weekend in late March, following a collapse in Credit Suisse’s deposits and share price amid fears of a global banking crisis triggered by the fall of U.S. lender Silicon Valley Bank.

In Monday’s earnings report, which could be the last in its 167-year history, Credit Suisse said it experienced significant net asset outflows, particularly in the second half of March 2023, which have “moderated but have not yet reversed as of April 24, 2023.”

First-quarter net outflows totaled 61.2 billion, 5% of the group’s assets under management as of the end of 2022. Deposit outflows represented 57% of the net asset outflows from Credit Suisse’s wealth management unit and Swiss bank for the quarter.

“In the second half of March 2023, Credit Suisse experienced significant withdrawals of cash deposits as well as non-renewal of maturing time deposits. Customer deposits declined by CHF 67 bn in 1Q23,” the bank said.

“These outflows, which were most acute in the days immediately preceding and following the announcement of the merger, stabilized to much lower levels, but had not yet reversed as of April 24, 2023.”

The acquisition is expected to be consummated by the end of this year, if possible, but the full absorption of Credit Suisse’s business into UBS Group is expected to take around three to four years.

However, the deal remains mired in legal and logistical challenges, particularly around the wipeout of $17 billion of Credit Suisse AT1 bonds.

At its annual general meeting last month Chairman Axel Lehmann and CEO Ulrich Koerner — both of whom took their posts within the last two years and inherited a bank reeling from a series of high-profile scandals, risk management failures and heavy losses — apologized to shareholders and staff.

Credit Suisse posted an annual net loss of 7.3 billion Swiss francs in 2022, including a 1.4 billion loss in the fourth quarter alone, as Lehmann and Koerner attempted a massive strategic overhaul aimed a bolstering its risk and compliance functions and addressing perennial underperformance in the investment bank.

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April 23, 2023
Banking turmoil was not a crisis but ‘the downside risks are real,’ IIF boss warns

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Tim Adams

Anjali Sundaram | CNBC

The banking sector turmoil that led to the collapse of several lenders was not a systemic crisis and has now subsided, according to Tim Adams, CEO of the Institute of International Finance.

The fall of Silicon Valley Bank in early March — the largest banking failure since the global financial crisis — triggered a wave of market panic that swept through the sector in Europe and the U.S.

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A flight of shareholders and depositors culminated in the downfall of Credit Suisse, with Swiss authorities brokering the emergency rescue of the 167-year-old institution by domestic rival UBS.

The smaller Signature Bank was closed by regulators stateside, while Wall Street giants stepped in to make $30 billion of deposits at First Republic, buying the regional lender time to establish a survival plan.

Markets have since stabilized, leading many to conclude that the problems were unique to the stricken banks and do not pose a systemic risk. However, the ripple effect has dented the economic outlook in many advanced economies.

Speaking to CNBC on the sidelines of the International Monetary Fund Spring Meetings in Washington D.C. on Tuesday, Adams said the March chaos was a “period of market turmoil or turbulence,” but dismissed the notion that it was a “crisis.”

“We have over 4,000 banks in the United States, we have about 10,000 banks globally that are part of SWIFT and 35,000 financial institutions around the world — 99.999% of them opened their doors over the past month and had no problems whatsoever — [it’s] really just a few isolated idiosyncratic institutions,” Adams told CNBC’s Joumanna Bercetche.

“So I think it is not a crisis, I think it was market turbulence, it has subsided, it has stabilized, but we need to be vigilant and we need to watch for other stresses in the system.”

The IIF is a global trade body for the financial services industry, with around 400 members in more than 60 countries. Adams said the primary concern among members was the downside risk to growth, particularly in advanced economies.

The IMF on Tuesday lowered its five-year global growth forecast to around 3%, marking the lowest medium-term forecast in an IMF World Economic Outlook report since 1990.

The D.C.-based institution’s Chief Economist Pierre-Olivier Gourinchas told CNBC on Tuesday that the turmoil in the banking sector had weakened the growth outlook, especially in the face of rapid monetary policy tightening from central banks that have sharply increased lenders’ funding costs and increased vulnerabilities.

“There are risks, there are geopolitical risks which we can talk about, but the downside risks are real and we just don’t know how deep they are,” Adams said.

“The Fed’s going to probably tighten again, we have other central banks in Europe and the U.K. tightening, so there are risks to the downside.”

Regulators in the U.S. and Europe took swift action to quash contagion risk in the face of the various banking collapses last month. However, U.S. Treasury Secretary Janet Yellen asserted on Tuesday that the banking system remains well capitalized, with ample liquidity.

Adams suggested many of the regulators he had spoken to, including those involved in developing the Dodd Frank and Basel III frameworks in the aftermath of the financial crisis, did not believe major regulatory changes were necessary this time around.

“It’s a very different system than [what] was prevailing in 2007, 2008. I do think we need to better understand what went wrong at certain institutions like SVB, I think we do need to ask what happened to supervision, but I don’t think we’re going to see regulatory changes,” he added.

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April 11, 2023
Banks in ‘more precarious situation’ creating risks for global growth, IMF chief economist warns

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Interest rate rises have increased banks’ vulnerabilities — and their response presents a significant risk to global growth, the International Monetary Fund’s chief economist warned Tuesday.

“We are concerned about what we have seen in the banking sector, particularly in the U.S. but maybe also in other countries, might do to growth in 2023,” Pierre-Olivier Gourinchas told CNBC’s Joumanna Bercetche in Washington, D.C.

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Central bank hikes have increased funding costs for banks, while lenders have also seen some losses in assets like long-term bonds.

“Banks are in a more precarious situation. They have healthy cushions, but it’s certainly going to lead them to be a little bit more prudent and maybe cut down lending somewhat,” Gourinchas said.

In one scenario, the IMF sees banks tightening lending further than at present, bringing its forecast of 2.8% global growth in 2023 down to 2.5%.

Gourinchas said its models had also forecast a more adverse scenario where financial stability is not contained.

“That would lead to massive capital flows from the rest of the world trying to go back to safety, going to U.S. Treasurys, dollar appreciation, increasing risk premia, loss of confidence,” he said. In this scenario, the IMF sees the world economy growing at about 1% for this year. But the risks of this are comparatively low, Gourinchas noted, at about 15%.

The IMF on Tuesday released its latest global growth report, which contained its weakest medium-term growth expectations for more than 30 years.

Financial stability has been in the spotlight in recent months, amid the collapse of several U.S. banks, the snap sale of Credit Suisse in Europe, and turmoil in the U.K. bond market that nearly toppled pension funds last fall.

Gourinchas told CNBC that the debate around central bank rate hikes had shifted from growth versus inflation to financial stability versus inflation.

He said central banks and financial authorities have shown they have the tools to address pockets of instability, for example U.S. regulators guaranteeing deposits for Silicon Valley Bank customers and Bank of England gilt purchases. “Monetary policy should stay focused on bringing inflation down, that’s our recommendation at this point,” Gourinchas concluded.

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April 11, 2023
March’s banking chaos gave short sellers their biggest profits since the financial crisis

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NEW YORK, NEW YORK – MARCH 15: Traders work on the floor of the New York Stock Exchange during morning trading on March 15, 2023 in New York City.

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Short sellers were sitting on more than $7 billion in profit from the mass sell-off of bank shares by the end of March, their largest windfall since the global financial crisis in 2008, according to data firm Ortex.

The collapse of Silicon Valley Bank and the emergency rescue of Credit Suisse by domestic rival UBS headlined a chaotic month for the global banking sector.

Fears of contagion sent shares tumbling across the U.S. and Europe, and the losses were compounded by further monetary policy tightening from the U.S. Federal Reserve.

Short selling is the practice of borrowing an asset and selling it on in the hope of buying it back at a lower price, pocketing the difference and profiting from the decline of its value.

Hedge funds shorting bank stocks were sitting on a total of $7.25 billion in unrealized gains over the course of the month, according to Ortex.

“ORTEX data shows that March was the single most profitable month for short sellers in the banking sector since the 2008 financial crash,” company co-founder Peter Hillerberg said Thursday.

Those with short bets against the failed SVB topped the pile with unrealized profits totaling more than $1.32 billion, according to the data. Fellow California-based bank First Republic netted short sellers almost $848 million as its shares sank 89% over the course of the month.

Credit Suisse’s capitulation made those with short positions against the bank’s Swiss-listed stock around $610 million in unrealized profit in March, Ortex data showed, with a combined $683.6 million generated from shorts on both its Swiss- and U.S.-listed shares.

The banking crisis ripple effect also seized Deutsche Bank stock despite the absence of any discernible catalyst, which prompted German Chancellor Olaf Scholz to publicly declare that the lender is a “very profitable bank” and that there was “no reason to be concerned.”

Deutsche stock yielded an unrealized $39.9 million for short sellers in March.

“The shares on loan in DBK went up by 496% during March, much of this at the end of the month when the price of the stock went up, which caused some of the profits for short sellers to be lost,” Ortex said, adding that it estimates that just over 5% of the bank’s free-float shares are currently shorted.

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April 6, 2023
Switzerland faced a full-scale bank run if Credit Suisse went bankrupt, Swiss regulator argues

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The Credit Suisse logo seen displayed on a smartphone and UBS logo on the background.

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Allowing the bankruptcy of troubled lender Credit Suisse would have crippled Switzerland’s economy and financial center and likely resulted in deposit runs at other banks, Swiss regulator FINMA said Wednesday.

FINMA (the Swiss Financial Market Supervisory Authority) and the Swiss central bank brokered UBS’ takeover for embattled Zurich rival Credit Suisse for 3 billion Swiss francs ($3.3 billion), in a deal announced on March 19. As part of the transaction, the regulator instructed Credit Suisse to write down 16 billion Swiss francs worth of AT1 bonds — widely regarded as higher risk investments — to zero, while entitling equity shareholders to payouts at the stock’s takeover value.

The bankruptcy plan, FINMA CEO Urban Angehrn said in a statement, was “de-prioritised early on due to its high tangible and intangible costs.” It would have erased the holding company Credit Suisse Group, along with the parent bank Credit Suisse AG and its branches, while retaining the Credit Suisse (Schewiz) AG entity because of its “systemic importance.”

“The parent bank Credit Suisse AG would have gone under – a Swiss bank with total assets of over CHF 350 billion and ongoing business also running into many billions,” Angehrn warned. “It is not difficult to imagine the disastrous impact the bankruptcy of a bank and wealth manager as large as Credit Suisse AG would have had on Switzerland’s financial centre and private banking industry. Many other Swiss banks would probably have faced a run on deposits, as Credit Suisse itself did in the fourth quarter of 2022.”

Angehrn noted that the emergency measure would have rescued Credit Suisse’s payments and lending functions to the Swiss economy, but come at a higher overall cost that dis-aligned with the “principle of proportionality.”

“The damage to the Swiss economy, financial centre and Switzerland’s reputation would have been enormous, with unquantifiable effects on tax revenues and jobs.”

Among FINMA’s other options, the resolution recourse would have downsized Credit Suisse, with the Swiss National Bank supplying liquidity assistance loans backed by a federal default guarantee. The bank’s equity and AT1 bonds would still have been written down to zero, with other bondholders being bailed in. FINMA estimates these measures would have altogether freed up 73 billion Swiss francs of capital, but this liquidity buffer would have heavily eroded investor sentiment.

The merger plan was ultimately preferred both to stabilize Credit Suisse and to prevent an overspill of the crisis into the international banking sector, FINMA argues.

“The current fragile state of the financial markets due to the shift to monetary tightening in 2022, the uncertain economic outlook, the crisis at certain banks in the US and the whole geopolitical backdrop were also relevant to our decision,” Angehrn said. “There was a high probability that the resolution of a global systemically important bank would have led to contagion effects and jeopardised financial stability in Switzerland and globally.”

The failure of Credit Suisse on the recent footsteps of U.S. bank collapses have stoked concerns over the strain testing the banking sector as a result of aggressive central bank interest rate hikes to combat inflation. The European Central Bank and U.S. Federal Reserve nevertheless proceeded with further increases in March.

Angehrn said the regulator has been in recent dialogue with the U.S., but did not experience international pressure in its supervision of Credit Suisse.

‘Too big to fail’ fine print

FINMA’s management of Credit Suisse’s unravelling and union with UBS have drawn intense public scrutiny, forcing the regulator to unprecedented levels of public disclosure, said Marlene Amstad, chair of FINMA’s board of directors.

“In this case, however, there is a particular supervisory need to set out the most important facts and to set rumours and assumptions straight.”

Domestically, Switzerland’s Federal Prosecutor has now opened an investigation into the takeover, looking into potential breaches of the country’s criminal law by government officials, regulators and executives at the two banks, according to Reuters. Several bondholders are studying legal action over the AT1 writedown.

FINMA said its management of the Credit Suisse crisis drew on the “too big to fail” standard developed after the financial crisis, with Switzerland emerging as the “first country to have to deal with the practical application of the second part of the TBTF legislation.” Namely, FINMA tackled a “gone concern,” for which TBTF requirements call for systematically important banks to have sufficient capital so that they might be restructured or liquidated in response to grave financial difficulties.

“For the first time, AT1 buffers were used at a global systemically important bank – they are an essential element in the TBTF legislation,” Amstad noted, adding that a TBTF instrument applying to resolutions or bankruptcies constitutes a drastic last-resort measure created to restrict financial contagion.

“On 19 March, however, we were in a different situation. The authorities would have risked not stopping a looming financial crisis by using the tool of resolution, but rather triggering such a financial crisis.”

Peter V. Kunz, chair in economic law and comparative law at the University of Bern, told CNBC on Wednesday that it was likely the Swiss Parliament will assemble a committee to investigate the relevant authorities’ handling of the rescue deal.

Wedded bliss

The takeover has reined in Credit Suisse’s independent troubles but heightens the risks posed by the bolstered scale of the new UBS-led entity spawned by the merger. The regulator downplayed these dangers in the context of UBS’ historical heft.

“As a proportion of Switzerland’s GDP, UBS will actually only be half the size it was before 2008, even after the merger with CS,” Angehrn said, describing UBS as a “robustly capitalised and well-organised bank” whose strategic plans are “well-founded” and which will face growing regulatory requirements following the completion of the takeover.

“In Switzerland’s ‘too big to fail’ regime, banks’ capital requirements grow progressively with a bank’s size. In other words a bank that is double the size has to hold more than double the capital. After an appropriate transition period, these higher capital requirements will apply to the new UBS. FINMA will monitor and enforce these capital requirements. “

The FINMA comments come on the same day as a UBS annual general meeting, where investors are turning to the bank — and returning CEO Sergio Ermotti — for guidance on next steps following the takeover.

Credit Suisse held its own AGM on Tuesday, whereby Axel Lehmann, who was re-elected as bank chairman later in the session, told shareholders he was “truly sorry” for the bank’s collapse.

— CNBC’s Elliot Smith and Hannah Ward-Glenton contributed to this report.

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April 5, 2023