In the event of a real bank rescue (bail in), the first parties involved are shareholders and holders of subordinated bonds (hybrid financial products halfway between stocks and bonds). Secondly, the losses are unloaded on the ordinary bonds and, finally, on the part of the deposits that exceed the guaranteed quota. Only in the very last and residual instance could the State bear the losses. In 2008, the bailout of UBS costing the Swiss state 6 billion francs
Could it really happen? The bankruptcy of one of the oldest, largest and most famous European banks? In recent days, the fear of a real Credit Suisse crash has become more concrete. On Wednesday, the Swiss central bank stepped in to support the institution by providing liquidity for 50 billion Swiss francs (51 billion euros). But on Friday, the Swiss group’s stock began to fall again on the stock exchange, closing at -8%. The quotations of the bonds, that could be involved in a bailout signal that the market is not convinced. These are bonds for a total value of at least 76 billion Swiss francs. Central bank liquidity give time but it doesn’t solve the problems. The main one is the deposit leak, started some time ago but dramatically accelerated in recent months and then even more in the last few days. And so it begins reckon even with worst case scenarios. It will be a weekend of feverish negotiations and difficult decisions. According to reports from the agency Reuters meetings of several who will report to the bank manager are already scheduled Dixit Joshi on the options available.
The European Central Bank has started collecting information from the banks under its supervision (ie the larger ones) to know their exhibits to Credit Suisse. In essence it is a recognition of the entity of the financial ties with the Swiss bank, the more consistent they are the higher the risk to be dragged in a possible fall. After an initial survey, the ECB stated that exposure overall is “limited and there is no concentration”. In any case, explained the vice president of the ECB yesterday Louis De Guindos “We have the tools to provide liquidity should it be needed.” In turn the US Treasury is reviewing the exposure of US banks. JP Morgan, Bank of America And citigroup have notified authorities that their exposures are minimal. In Europe the French BNP Paribas it has moved to reduce its exposure by blocking derivative transactions involving the Swiss bank. It would be doing the same Deutsche Bank and Société Générale in addition to the British Hsbc. So far in Italy the only bank to have issued an official communication on the matter is the group Cash of Ravenna (Cassa di Ravenna spa, Banca di Imola spa and Banco di Lucca e del Tirreno spa). The note states that the companies of the group “have no financial exposure to these counterparties, nor have they placed any of their products with their customers” with reference to the recent news on the bankruptcy of the US banks Silicon Valley Bank and Signature Bank, as well as the difficulties of Switzerland Credit Suisse.
The balance sheet of the Swiss giant shows assets of 531 billion Swiss francs. The size of the bank’s balance sheet has shrunk a lot in these years of crisis, in 2021 assets amounted to 755 billion, in 2020 to 819 billion. The fact that the bank has greatly downsized is paradoxically a good thing, given that its weight in the banking system is less impressive. On the balance sheet there are loans for 276 billion, around half disbursed to Swiss counterparties. Deposits, at the end of 2022, amounted to 234 billion. In addition to the outflow of funds, the bank has to deal with and with the poor profitability of some business divisions.
Among the hypotheses that bounce between Zurich and Bern in these hectic hours there is also that of the “stew” with the separation of the bank divisions which would then sold or listed separately. The other scenario is that of a merger with the other big Swiss, i.e. Ubsbank that is welcoming many of the depositors fleeing Credit Suisse. However, both institutes have expressed their opinion opposition to “forced marriage” and the operation could run into some regulatory problems anti trusts. But that doesn’t seem insurmountable. The most catastrophic scenario is that of the actual liquidation of the bank under the auspices of the Swiss central bank which could still guarantee the deposits limiting the damage. It would be a risky road, also from a social and political point of view, given the possible repercussions on Swiss taxpayers. As happened in 2008 when Ubs was saved insteadalso thanks to the 6 billion francs allocated by the government.
In the event of a real bank bailout the first parties involved are shareholders and holders of subordinated bonds (hybrid financial products halfway between stocks and bonds but which are nonetheless called upon to absorb losses). The capital of the bank amounts to 35 billion francs. If that’s not enough, secondly, losses are charged to ordinary bonds and finally, on the part of the deposits they exceed the guaranteed amount. Only in the very last and residual instance could the State bear the losses.
As in Europe and the USA, bank deposits are also insured in Switzerland. The guarantee fully covers deposits up to 100,000 francs (about 100 thousand euros). For the part that exceeds this sum, it passes to bankruptcy proceedings with the possibility of recovering the sums with bankruptcy proceedings. It must be said that historically Credit Suisse is a bank specialized in managing large estates, the share of accounts with large sums and beyond the guarantee threshold could therefore be above average. Those who certainly have a lot to lose, and have already lost, are the bank’s large shareholders. In the lead are Middle Eastern investors. The largest share (9.9%) belongs to Saudi national bank. Another 5% belongs to Qatar Holding, and 4.9% to Olayan group financial entity attributable to Saudi Arabia. Precisely the statement of the president of the Saudi National Bank Ammar Al Khudairy on the unwillingness to pour more money into the Swiss group, triggered last Wednesday’s meltdown which led to the intervention of the Swiss central bank. There was no shortage of reconstructions on the matter according to which riad he would have liked to sink the bank on input from China and Russia with which the country has maintained close ties. Strengthened in the last few weeks after the thaw with the historic enemy, Iranorchestrated by Beijing.