A week after the biggest banking deal in Switzerland and continental Europe, the Swiss finance minister backed a quick merger of the country’s two biggest banks, saying it was necessary to use emergency law to stabilize the situation.
Swiss authorities used emergency legislation to quickly reach an agreement between the two banks. For example, such acquisitions usually involve shareholders, to a large extent, angering some of them.
“Credit Suisse will not stay until Monday,” Karin Keller-Sutter told the local newspaper “Neue Zurcher Zeitung” on Saturday, explaining the need for a quick solution to the bank’s problems. Also, “without a solution, payment transactions with Credit Suisse in Switzerland would have been greatly affected, possibly collapsed, and salaries and invoices could not be paid.”
Last Sunday it was announced that UBS had agreed to buy its rival Credit Suisse for three billion Swiss francs ($3.23 billion) in shares, and they agreed to take five billion francs ($5.4 billion) in losses in a Swiss-arranged merger. Authorities to prevent other market disruptions related to global banking services.
Keller-Sutter said the Swiss government’s federal executive committee “did absolutely what was necessary to achieve the goal of stability.” “If we do nothing, Credit Suisse shares will be worthless on Monday and shareholders will have gone home empty-handed.”
It came amid global fears of contagion from the collapse of banks around the world, ahead of US Silicon Valley and signature banks shuttered after they faltered.
UBS’s takeover of Credit Suisse for a small sum and strong financial guarantees from the authorities drew heavy criticism in Switzerland. But Keller-Sutter stressed that “all other options are, in my opinion, too risky for the state, the taxpayers, the Swiss stock market and international markets.”
He explained that he had come to the conclusion in recent weeks that while a globally important bank like Credit Suisse could legally be liquidated, “in practice, the economic damage would be significant.”
And the finance minister added that it was “possible that Switzerland could become the first country to dissolve a major international bank” but “it was clear that the time was not right to conduct experiments.”
The government, the Swiss central bank and the market watchdog (Finma) acknowledged the fact that “the reorganization or bankruptcy of Credit Suisse by splitting off its operations in Switzerland … could trigger an international financial crisis.” Karin Keller-Sutter.
A majority of citizens (54 percent) disapprove of the UBS takeover of Credit Suisse, according to a poll published by Swiss radio and television on Friday.
And the finance minister added, “Many of them are angry and I understand that very well,” adding: “I admit that it is difficult for me to accept that too. Especially when administrative mistakes have contributed to this situation.” However, “an approved solution best protects everyone.” He insisted that if the bank was nationalized, the government would have to bear all the risks.
Keller-Sutter also emphasized that Switzerland was not subject to external pressure. But it was clear to everyone, including us, that the reorganization or liquidation of Credit Suisse would cause serious international turmoil in the financial markets.
The minister also criticized those who accused the authorities of acting too late when Credit Suisse was reeling for two years due to a series of scandals. In this regard, he said: My ministries, the Swiss Central Bank and (FENMA) discussed the emergency situations on the second day I assumed the finance portfolio in January. This should have been done behind the scenes to avoid damaging trust in Credit Suisse. And he continued, “At the beginning of February I informed the entire Federal Council (government) of the state of emergency.”
Meanwhile, Indian Finance Minister Nirmala Sitharaman yesterday asked state-owned banks to closely monitor economic risks and adverse exposures after pressures on banking systems in the US and Europe.
In a statement issued by the finance ministry, Bloomberg reported that Sitharaman was willing to focus on risk management and diversification of deposits and asset bases in his meeting with public sector banks.
It advised banks to remain alert to interest rate risk and conduct regular stress tests.
Bloomberg quoted banks as following developments in the global banking sector and taking steps to protect themselves from any potential financial shock.