UBS CEO “Didn’t you take over to close Credit Suisse”

Credit Suisse

With Switzerland’s global investment bank Credit Suisse (CS) being acquired by its largest competitor UBS, UBS CEO Ralph Hammers stressed that it was not acquired to shut down Credit Suisse.

According to Reuters on the 27th, UBS CEO Hamers said in an internal message to employees, “We didn’t take over Credit Suisse simply to close it,” adding, “We didn’t want this deal, but we were ready and saw it as an opportunity to accelerate growth.”

Credit Suisse was sold to UBS for 3 billion Swiss francs on the 19th after being embroiled in a management crisis due to a series of investment failures and customer withdrawals.

It is an acquisition contract intervened by the Swiss federal government, judging that it could lead to a financial crisis not only in Switzerland but also in Europe as a whole.

The deal came as the government pledged 100 billion Swiss francs worth of liquidity support in the acquisition process and pledged 9 billion Swiss francs of potential losses from assets acquired by UBS.

In addition, Credit Suisse received 50 billion Swiss francs in liquidity from the Swiss National Bank (SNB), the Swiss central bank, before the acquisition of UBS was decided.

SNB’s demand deposit balance has increased significantly since UBS’ acquisition of Credit Suisse.

According to SNB, SNB’s balance of demand deposits stood at 567 billion Swiss francs last week, up 52 billion Swiss francs from 515 billion Swiss francs the previous week.

This is the second-largest increase since August 2011, when the SNB sold a large amount of Swiss francs to ease upward pressure on its currency.

Such an increase in SBN’s demand deposit balance means that Credit Suisse and UBS, which acquired it, used the liquidity provided by SNB, Reuters explained.

“The increase in SNB’s demand deposits is likely the result of Credit Suisse’s use of additional liquidity provided by SNB, and UBS may also be taking advantage of it,” said Karsten Unius, economist at J. Safra Sarasin Bank.

Meanwhile, the Wall Street Journal (WSJ) reported that bank loans are expected to decrease further in the future as bank soundness instability such as the Credit Suisse crisis intensifies while European banks were reducing loans due to the base rate hike.

According to data released by the European Central Bank (ECB), European banks reduced loans to companies in the eurozone (20 countries using the euro currency) by 3 billion euros from the previous month. Loans grew 4.9 percent on-year, down from 5.3 percent in January.

The ECB began raising its key interest rate in July last year due to steep inflation (price hikes), which allowed banks to make more profits from higher interest rates, but rather reduced loans.

Some economists predict that the decline in loans could accelerate in the coming months as the recent banking crisis has made banks, which have been reducing loans, more cautious.

European investment bank Deutsche Bank’s stock price plunged 8.5% on the 24th compared to the previous day, and European banks’ credit default swap (CDS) premium soared.

In addition, the WSJ observed that the full value of Credit Suisse’s new capital securities (AT1) in the process of acquiring Credit Suisse by UBS could weaken confidence in the $250 billion European Cocobond market, raising European banks’ loan costs.

The problem is that banks facing deposit withdrawals due to the banking crisis should pay more interest to depositors and thus apply higher interest rates to borrowers to prevent them from leaving.

Eurozone households and companies withdrew deposits from banks for the second straight month last month in search of higher interest rates, ECB data showed.

ECB officials are concerned that the drop in banks’ loans could be sharper than in past monetary tightening periods, amplifying the impact of the central bank’s monetary policy on the economy.

However, there are also signs that the eurozone economy is more resilient than expected.

Standard & Poor’s (S&P) Global’s preliminary figure for this month’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) was 54.1, up from 52.0 in February, and the highest in 10 months.

This means that inflation could last longer than expected amid a good manufacturing economy, the WSJ diagnosed.

UBS CEO “Didn’t you take over to close Credit Suisse”

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