LIVE: Updates from the UBS takeover of Credit Suisse and market implications

Updates as UBS holds analyst call, central banks from around the world issue statements and details of the merger come to light.

By Editors
March 27, 2023 10:20 AM GMT: Saudi National Bank chairman resigns after his comments last week sent Credit Suisse stock spiralling.

Saudi National Bank (SNB) chairman Ammar Al Khudairy has resigned for “personal reasons”, the bank revealed today. He will be replaced by current CEO Saeed Mohammed Al Ghamdi. The move comes after Al Khudairy made comments to the media last week stating that SNB, one of the biggest investors into Credit Suisse, would “absolutely not” consider further cash injections into the struggling bank. His comments are widely seen to have sparked a downward spiral for the Credit Suisse share price, which fell to its lowest level on record and segued into a wider slump across European bank stocks – with the controversial UBS merger confirmed just days later. 

SNB bought 9.9% of Credit Suisse in November 2022 for about $1.46 billion, an investment that has seen it write down almost $1 billion in losses, as well as seeing its own share price tumble to the tune of around $26 billion in market value. Prior to his departure, Al Khudairy confirmed that the bank was no longer looking at international acquisitions. 

March 22, 2023 5:51 AM GMT: UBS Group announces buy back of roughly $3 billion in week-old bonds

UBS Group has today invited holders of certain senior unsecured bail-in notes, originally issued on 17 March, to tender them in early for cash. Among the instruments are the 1.5 billion EUR 4.625% fixed rate notes due to expire in March 2028 and the 1.25 billion EUR 4.750% fixed rate notes due to expire in March 2032. The instruments total around three billion – a similar sum to the one agreed as part of the bank’s Credit Suisse deal announced on Sunday. The move is most likely designed to reassure UBS shareholders as the bank’s share price has moved around since the announcement.

“Whilst UBS has been in compliance with all of its obligations relating to the Notes since the Issue Date, the Issuer is offering to purchase the Notes at their respective re-offer price in light of the exceptional corporate actions announced on 19 March 2023, shortly after the issue date,” the bank said in a statement. “The Issuer has decided to launch this exercise as a result of a prudent assessment of these recent developments and the Issuer’s long-term commitment to its credit investors.”

The offer commenced on 22 March (today) with the early expiration deadline on 28 March and final expiration deadline on 4 April.

March 21, 2023 12:30 PM GMT: Bank of England releases statement clarifying creditor hierarchy. 

The Bank of England yesterday (20 March) followed European regulators by distancing itself from the Swiss decision to write down Credit Suisse AT1 bonds to zero. The bank released a statement clarifying UK creditor hierarchy:

“The UK’s bank resolution framework has a clear statutory order in which shareholders and creditors would bear losses in a resolution or insolvency scenario. This was the approach used for the recent resolution of SVB UK, in which all of SVB UK’s Additional Tier 1 (AT1) and T2 instruments were written down in full and the whole of the firm’s equity was transferred for a nominal sum of £1.

“AT1 instruments rank ahead of CET1 and behind T2 in the hierarchy. Holders of such instruments should expect to be exposed to losses in resolution or insolvency in the order of their positions in this hierarchy.

“The Bank welcomes the comprehensive set of actions taken yesterday by the Swiss authorities in order to ensure financial stability. The UK banking system is well capitalised and funded, and remains safe and sound.”

March 21, 2023 08:00 AM GMT: Credit Suisse AT1 bonds still trading, lose 84% by Monday close.

Credit Suisse’s contingent convertible (CoCo) bonds, also know as Additional Tier 1 (AT1) securities, were still trading yesterday, but at a fraction of their former value. The bank’s bonds fell by an average of 84% as of 5pm Monday 20 March compared to 5pm Friday 17 March, according to Tradeweb data. The contagion has spread across the AT1 space: with almost all other European AT1 securities falling over the weekend. Swiss entities or those with exposure were unsurprisingly the biggest losers, given the uncertainty now rife around the Swiss regulator’s approach to the hierarchy of bank funding. Deutsche Bank and UBS saw their CoCos lose around 12-14%, while Austrian banking group Raffeisen lost around 12% from its AT1 securities and Swiss entity Julius Bar around 11%. Credit Agricole, Standard Chartered, Danske Bank and Swedbank were also burned, as was the UK’s Virgin Money, among others.

March 20, 2023 2:53 PM GMT: European regulators distance themselves from Swiss AT1 decision – “Additional Tier 1 is and will remain an important component of the capital structure of European banks”. 

The Single Resolution Board, the European Banking Authority and ECB Banking Supervision issued a statement earlier today welcoming the “comprehensive set of actions” taken by the Swiss authorities to ensure financial stability. However, they appeared to distance themselves from the steps taken by the Swiss National Bank with regards to AT1 debt: reassuring bondholders that within the EU, AT1 debt would continue to be recognised above common equity in the event of a write-down.

“The resolution framework implementing in the European Union the reforms recommended by the Financial Stability Board after the Great Financial Crisis has established, among others, the order according to which shareholders and creditors of a troubled bank should bear losses,” said the statement. 

“In particular, common equity instruments are the first ones to absorb losses, and only after their full use would Additional Tier 1 be required to be written down. This approach has been consistently applied in past cases and will continue to guide the actions of the SRB and ECB banking supervision in crisis interventions.  

“Additional Tier 1 is and will remain an important component of the capital structure of European banks.”

European AT1 bonds tumbled in Monday trading, with some buy-side traders citing prices up to 20-30bps out. 

March 20, 2023 2:53 PM GMT: Credit Suisse AT1 bondholders prepare to take legal action. 

In the light of the write-down of all Credit Suisse AT1 bonds to zero, global litigation firm Quinn Emanuel Urquhart & Sullivan has put together a multi-jurisdictional team of lawyers from Switzerland, the US and the UK. In a statement today, the law firm confirmed that it was already in discussions with a number of holders of Credit Suisse’s AT1 capital instruments, representing “a significant percentage” of the total notional value of AT1 instruments issued by Credit Suisse, about the possible legal actions that may be available to them in light of the announcement of the merger between UBS and Credit Suisse. 

Quinn Emanuel’s work for the Credit Suisse bondholder group comes in the wake of its instruction, by an ad hoc group of bondholders, to pursue various litigations arising out of the resolution of Spanish bank Banco Popular, which was resolved in 2017 and sold to Banco Santander for €1, with all AT1 and T2 capital instruments being written down to zero as part of that deal. 

A call for bondholders is expected to take place on Wednesday, 22 March, to evaluate “potential avenues for redress”. 

March 20, 2023 08:00 AM GMT: Bank of England statement claims the UK banking system remains “safe and sound” – but doubts now cast on possible rate hikes. 

The Bank of England released a statement last night welcoming the Credit Suisse deal. However, doubts are now being raised as to whether the Monetary Policy Committee (MPC) will increase interest rates as previously expected on 23 March. The last rate hike, on 2 February 2023, bumped the base rate by 0.50% to 4.00%, with a further quarter percent rise widely expected on Thursday. However, the stability concerns raised by the recent Silicon Valley Bank (SBV) collapse and last night’s Credit Suisse deal could see the bank pause rate hikes despite inflationary pressure – with some, including former MPC member David Blanchflower, calling for a cut in rates to 3% and a pause in quantitative tightening. Two MPC members out of seven voted to keep rates at 3.5% when the committee last met on 2 February.

The US Federal Reserve, which is also meeting this week, was expected to raise rates by 0.50% but may now reduce or pause its hike. The European Central Bank however, which met last week, voted for a 50bps rate hike despite the ongoing SBV and Credit Suisse turmoil.

March 19, 2023: Christine Lagarde, president of the ECB, supports the “swift action” taken by the Swiss authorities. 

“I welcome the swift action and the decisions taken by the Swiss authorities. They are instrumental for restoring orderly market conditions and ensuring financial stability,” said Lagarde in a statement. 

“The euro area banking sector is resilient, with strong capital and liquidity positions. In any case, our policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”

March 19, 2023 10:00 PM GMT: Analyst Q&A ends

March 19, 2023 09:53 PM GMT: Credit Suisse bankers told ‘no immediate impact on clients or day-to-day working operations’

Internal memo from Axel Lehman and Ulrich Körner tells traders at Credit Suisse to continue to come to work as branches and offices will be open and there will be no immediate impact on clients or day-to-day working operations.

March 19, 2023 9:16 PM GMT: Analyst Q&A begins

Regarding AT1 bonds: UBS says: “It’s just the order in which things work. FINMA took that decision.”

On challenges: “The real challenge is the rundown of the investment banking activities.”

March 19, 2023 9:14 PM GMT: UBS Chief Executive Officer Ralph Hamers on investment banking

On the global banking side we see strengths combined – on Credit Suisse side on the US side and technology front.

“The transaction is strategic and fulfils a couple of our strategic points.”

March 19, 2023 9:09 PM GMT: UBS Chief Executive Officer Ralph Hamers

“We look forward to welcoming our new colleagues.”

Deal expected to close in the second quarter of 2023.

Combined entity will become a top three asset manager in Europe (up from number five), and number 11 globally (up from number 19).

March 19, 2023 9:06 PM GMT: UBS Chairman Colm Kelleher analyst call

“It’s a historic day in Switzerland and a day we hoped would not come.”

“We did not initiate discussions…but is attractive to UBS shareholders”.

We plan to “de-risk and downsize Credit Suisse’s trading operations.”

March 19, 2023 8:45 PM GMT: Statement from The Bank of England

“We welcome the comprehensive set of actions set out by the Swiss authorities today in order to support financial stability. We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation. The UK banking system is well capitalised and funded, and remains safe and sound.”

March 19, 2023 8:00 PM GMT: Joint Statement by the Department of the Treasury and Federal Reserve

“We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation.”

March 19, 2023 7:23 PM GMT: FINMA says there will be a “complete write-down of the nominal value of all AT1 shares of Credit Suisse”

“In close coordination with FINMA, the Swiss Confederation and the SNB, UBS will take over Credit Suisse in full. The extraordinary government support will trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse in the amount of around CHF 16 billion, and thus an increase in core capital,” says The Swiss Financial Market Supervisory Authority FINMA.

March 19, 2023 7:23 PM GMT: Investment banking update

Statement from UBS: “UBS Investment Bank will reinforce its global competitive position with institutional, corporate and wealth management clients through the acceleration of strategic goals in Global Banking while managing down the rest of Credit Suisse’s Investment Bank. The combined investment banking businesses accounts for approximately 25% of Group risk weighted assets.”

March 19, 2023 7:23 PM GMT: BREAKING NEWS – UBS agrees landmark takeover of Credit Suisse after intervention from Swiss authorities

Banks both confirm the deal after Swiss National Bank announced the takeover was to “protect the Swiss economy” in an “exceptional situation” during a weekend to remember in the financial services space.

Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF0.76/share for a total consideration of CCH3 billion [$3.25 billion].