Swiss are on the hook for $13,500 each on Credit Suisse bailout

Govt to make as much as 109 billion Swiss francs available - a burden on the nation of 8.7 million

Credit Suisse

Photo: Bloomberg

Switzerland’s tab for shoring up its reputation as a financial center could run to 12,500 Swiss francs ($13,500) for every man, woman and child in the country. 
To backstop the emergency sale of Credit Suisse Group to its Zurich rival UBS Group, the Swiss government pledged to make as much as 109 billion Swiss francs available — a hefty burden for the country of 8.7 million people. 

On top of that, there’s a guarantee from the Swiss National Bank of 100 billion francs that isn’t backed by a government guarantee, according to the deal announced Sunday evening.
The combined sum of 209 billion francs is equivalent to about a quarter of Switzerland’s gross domestic product and exceeds total European defense spending in 2021. 

The price tag for Switzerland’s largest ever corporate rescue could add up to more than three times 
the 60 billion-franc bailout of UBS in 2008. 

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The renewed rescue for well-paid bankers sparked protests. About 200 people gathered outside Credit Suisse’s headquarters in Zurich on Monday, chanting “eat the rich” and throwing eggs at the building at the heart of the city’s financial district. 
“We are fed up with the idea that if you are big enough, you get everything,” said Christoph Rechsteiner, a partner at the Zurich-based tax consultancy MME. “The law is changed for you over a weekend.”

On top of the financial guarantees, the Swiss government agreed to change legislation that bypasses shareholder approval and the country’s financial regulator wiped out about 16 billion francs worth of Credit Suisse bonds to increase the bank’s core capital. 
“The solution that has been drafted now is that if all comes good, UBS makes a huge profit,” Rechsteiner said by phone. “They got Credit Suisse for nothing at all and the government is backing the losses.”

US will intervene if needed to protect smaller banks: Yellen
Treasury Secretary Janet Yellen said on Tuesday that the US government could repeat the drastic actions it took recently to protect bank depositors if smaller lenders are threatened.
“Our intervention was necessary to protect the broader US banking system, and similar actions could be warranted if smaller institutions suffer deposit runs that pose the risk of contagion,” Yellen said, according to excerpts from remarks she’s scheduled to deliver at a conference of the American Bankers Association in Washington on Tuesday. 
US authorities took extraordinary steps earlier in March to bolster confidence following the failure of Silicon Valley Bank and Signature Bank. Regulators guaranteed insured and uninsured deposits at the two institutions, and the US Federal Reserve launched a new backstop for lenders to help them meet deposit withdrawals.

                   - Bloomberg

PIMCO lost $340 mn with Credit Suisse AT1 bonds write-off
Bond giant PIMCO lost about $340 million on a category of Credit Suisse bonds that were wiped out by the takeover by UBS, with the American investment manager's overall exposure to the Swiss lender running into billions, a source familiar with the situation said. Swiss authorities decided to wipe out some $17 billion worth of Credit Suisse's Additional Tier 1 (AT1) debt under a deal which saw shareholders receive $3.23 billion. Shareholders usually rank below bondholders in terms of who gets paid when a bank or company collapses.
                    - Reuters

US studies ways to expand FDIC coverage to all bank deposits
US officials are studying ways they might temporarily expand Federal Deposit Insurance Corp. coverage to all deposits, a move sought by a coalition of banks arguing that it’s needed to head off a potential financial crisis.
Treasury Department staff are reviewing whether federal regulators have enough emergency authority to temporarily insure deposits greater than the current $250,000 cap on most accounts.

- Bloomberg
First Republic shares rise 23%  
Shares of First Republic Bank were up 37 per cent after days of a brutal selloff on concerns over its financial health sent the stock to an all-time low. 
First Republic was last trading at $16.67, a day after missing out on a broader rally in bank stocks.

S&P cuts UBS credit outlook to negative
UBS Group’s credit outlook was lowered to negative by S&P Global Ratings and Moody’s Investors Service as the bank faces risk in the wake of its acquisition of Credit Suisse Group. The long-term rating was affirmed by S&P at A-.          
                                                                                                                                                                                     - Bloomberg

First Published: Mar 22 2023 | 12:00 AM IST

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