Deep, Deep Discounts
When I read the headline bid (initially $1 billion), I immediately thought this is either a purposeful lowball bid to start the auction or there is a mass of damage on the books of Credit Suisse that are not fully understood.
Looking at the details, I wonder if Credit Suisse is worth anything at all.
In the addendum at the bottom of this post, I note the offer was raised to $2 billion and it will go through.
The Wall Street Journal reports UBS Offers $1 Billion to Take Over Credit Suisse
Group AG has offered to buy rival Credit Suisse for around $1 billion in a deal engineered by Swiss regulators to prevent a crumbling of confidence in banks from spreading, according to people familiar with the matter.
Swiss authorities on Sunday tried to make the deal happen before Asian markets opened for the week. They walked a fine line, needing to get the two banks’ boards to agree to the deal and avoiding the alternative, a regulator-led winddown of Credit Suisse, which could prove more protracted and painful for the financial system.
Any deal between the two banks would essentially be a forced marriage that is likely to leave shareholders on both sides dissatisfied, the people familiar said.
To smooth the deal, the Swiss National Bank has offered UBS around $100 billion in liquidity to help it take on Credit Suisse’s operations, according to the people familiar with the matter. Details of the liquidity offer couldn’t be learned.
The urgency on the part of regulators was prompted by an increasingly dire outlook at Credit Suisse, according to one of the people. The bank faced as much as $10 billion in outflows a day last week, this person said. The regulators feared that the bank would become insolvent next week if not dealt with, and they were concerned crumbling confidence could spread to other banks.
Credit Suisse has over $160 billion of long-term debt, some of which is classified as bail-in instruments, which can get wiped out in case regulators force the bank into a restructuring.
The $160 in bail-in debt might explain the deep discounts. Also note that it takes $100 billion in liquidity to allegedly prevent insolvency.
Here’s the real deal, Credit Suisse is insolvent now if it takes $100 billion to make it appear solvent.
Solvency aside, it does not seem anyone will be happy with this shotgun marriage.
Addendum Deal Finalized at $2 Billion
https://twitter.com/ZappaCoin/status/1637504379610877952
“UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote on the transaction as they rush to finalize a deal before Monday.”
Best part is: “change the country’s laws”
Will they change the laws before or after the merger?
This deal is the forced merger of the two biggest too big to fail banks in Switzerland to a single too big to fail behemoth.
Reflections on Too Big to Fail
https://twitter.com/RobMcNealy/status/1637226212832710656
This post originated at MishTalk.Com.
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Mish
And one bank to rule them all! What a joke. A 2bn dollar buyout; sweetened with a 100bn dollar liquidity buffer. Always let those that fail lead the way. Too big to fail just means the consolidation and control the state loves trumps prosperity.
I agree. I do not expect some overnight shift, or necessarily any shift. Look at how long it took to knock the UK pound off its reserve perch. I would like to rethink the reserve currency question, and have a significant degree of respect for Mish’s take. If I didn’t, I wouldn’t even be here much less ask. I do think dollar hegemony’s future has become increasingly questionable, but you can drive a truck through that sentiment.