MARCH 21, 2023
Veteran banker and Kotak Mahindra Bank CEO, Uday Kotak, on Monday pointed that Credit Suisse’s sale to UBS at a discount of 60 per cent along with a write-off of AT1 bonds worth $17 billion is a signal for all bankers and stakeholders on what happens when the risk-return matrix is overtaken by obsession with size.
“Credit Suisse sold to UBS for 3 bn $. 60% discount to stock value at Friday closing. ~600 bn $ balance sheet sold for 3 bn $ equity value. 17 bn $ of AT1 bonds written off. A signal for all bankers and stakeholders, when risk return matrix is overtaken by obsession with size,” the billionaire industrialist tweeted.
UBS has agreed to buy rival bank Credit Suisse for 3 billion Swiss francs ($3.23 billion) and assume up to $5.4 billion in losses, in a shotgun merger engineered by Swiss authorities, Reuters reported. UBS is reportedly paying about 60 per cent less than what the bank was worth when markets closed on Friday.
The Swiss government is providing more than 100 billion francs in aid and financial backstops to make the deal go through.
Under the deal, 16 billion Swiss francs ($17 billion) of Credit Suisse’s Additional Tier 1 debt will be written down to zero on the orders of the Swiss regulator.
According to a report by AP, Swiss authorities pushed for UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to reassure investors and the bank’s customers.
Shares of Credit Suisse and other banks plunged this week after the failure of two banks (Silicon Valley Bank and Signature Bank) in the US sparked concerns about other potentially shaky institutions in the global financial system.
Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.
UBS Chairman Colm Kelleher said the bank wants to keep Credit Suisse’s Swiss unit, calling it a “fine asset”.
The European Central Bank said on Sunday that a Swiss rescue of Credit Suisse was “instrumental” for restoring calm on financial markets but it remained ready to support euro zone banks with loans if needed.
Courtesy: Business Today / PTI