A Swiss bank teeters on the brink of catastrophe as ministers and central bankers scramble to arrange a bailout…
But this is not yesterday’s news, when UBS bailed out Credit Suisse. This was 15 years ago. And it was UBS, not Credit Suisse, that had to bail out as the financial crisis swept global lenders.
With the tables turned and the rescued now the savior, what is effectively a “shotgun wedding” has been forged to prevent another wave of market turmoil.
The strange couple: UBS has its own eventful history. But in recent years, the horror shows have been overshadowed by the spectacular Credit Suisse self-immolation
But if you agree to be marched down the aisle by Swiss regulators, it could be a happy outcome for UBS.
If there are no more skeletons lurking in Credit Suisse’s closet after the deal closes, the £2.6bn price tag could even look like a bargain.
UBS has its own eventful history.
But in recent years, the horror shows have been overshadowed by the spectacular self-immolation of Credit Suisse, which was valued at more than £70bn at its pre-financial crisis peak.
Founded in 1856 to fund the expansion of the Swiss railways, it has been thrown off track in recent years by a series of scandals that seemed to have fueled its acceleration to the cliff edge.
It built a massive asset management company and a UK-based investment banking subsidiary, Credit Suisse International.
Both Swiss banks are among 30 considered so large that their failure could trigger a financial crisis – which explains why officials have been so desperate to limit the damage of the latest turmoil.
Credit Suisse proved more resilient than UBS when the global banking industry came to its knees in 2008.
Investor confidence was boosted by Qatar’s sovereign wealth fund buying a stake in Credit Suisse.
Getting married: UBS CEO Ralph Hamers (left) and Credit Suisse boss Ulrich Koerner
Like many other global banking giants, it came under intense scrutiny from US regulators in the aftermath of the crisis and was fined billions of dollars for tax evasion and money laundering.
In 2013, former Credit Suisse trader Kareem Serageldin became the only banker jailed over the US subprime mortgage scandal that caused the crash.
Two years later, Tidjane Thiam, boss of British listed insurance giant Prudential, stepped down to become its new boss. But his tenure would later end amid a power struggle and espionage scandal.
Thiam stepped down in 2020 after it emerged that two senior executives had been placed under supervision – one of whom was on gardening leave before taking a top job at UBS.
Tragically, a private investigator involved in the episode took his own life. An inquiry cleared Thiam of any wrongdoing, but he was forced out by chairman Urs Rohner.
Another former bigwig of the city would prove to be of even shorter duration. Ex-Lloyds boss Antonio Horta-Osorio stepped down as chairman in 2022, just nine months after breaking Covid-19 rules to go to the Wimbledon tennis final.
Short-lived: Tidjane Thiam and Antonio Horta-Osorio
In the meantime, the bank turned out to have delved into more ill-advised plans.
In 2021, it lost billions when US investment firm Archegos collapsed after its bets on several technology stocks fell through.
Then came the demise of supply chain finance firm Greensill – which counted ex-Prime Minister David Cameron as an adviser – leading Credit Suisse to close funds in which clients had invested more than £8bn.
Later that year it pleaded guilty and paid fines totaling around £400 million for the so-called ‘tuna bond’ scandal in Mozambique, which involved raising money intended to pay for a fishing fleet but leaving much of the money was funneled back to officials and bankers.
Ulrich Koerner took over as CEO of Credit Suisse in August last year with a plan to spin off part of its investment banking arm and sell off other riskier parts of the company.
But when Koerner said the lender was at a “critical moment,” investors were shocked — even though chairman Axel Lehmann boasted it would soon be “rock solid as our Swiss mountains.”
An exodus of funds last year saw £99 billion of cash withdrawn in the fourth quarter. Last month, the bank reported an annual loss of £6.5 billion, its worst since the financial crisis, and warned of another year in the red before 2023.
Then the collapse of California’s Silicon Valley Bank triggered a global sell-off. And when Credit Suisse’s biggest lender ruled out putting in any more money, his fate was sealed.
Not even a £45bn lifeline from the Swiss National Bank was enough to save it and his rival stepped in – despite reports last week that neither had been keen on a draw.
Then came UBS, which traces its own history back to 1862. UBS was bailed out during the financial crisis, but has since paid off a loan from the central bank.
But today – under the leadership of Ralph Hamers – it seems like a health picture compared to Credit Suisse.
And analysis suggests that by bringing together the Switzerland-focused parts of the two banks, the partnership could generate billions in savings that dwarf the price of the deal.
Jerry del Missier, a former Barclays executive, thinks the deal is “almost certain to be a huge success.”
“They acquired a well-capitalized bank for less than nothing and will have seen their position in wealth and wealth management strengthened significantly,” he added.
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