“We really would like them to ⁠have capital requirements that finance fully, especially the subsidiaries in the United States,” she said about UBS, which became Switzerland’s sole global bank when it acquired fallen rival Credit ‌Suisse ⁠in 2023.

“Switzerland’s financial center has to be a stable location in the long run, and being ⁠well-capitalized can be an advantage for banks. Maybe it’s not Indiana Jones. But I think it is reliable and stable,” Keller-Sutter remarked at a recent banking ⁠event in Zurich.

The capital rules have become a major bone of contention between the government and the Swiss banking biggie, with draft legislation submitted to parliament in April that wants to introduce “tougher regulations” to prevent a repeat of the Credit Suisse meltdown. The lawmakers want UBS to fully back its foreign units with Common Equity Tier 1 (CET1) capital.

However, as per the reports, the draft rules have gone through changes, with the latest proposals making it mandatory for UBS, which successfully absorbed its domestic rival Credit Suisse in 2023 through a government-choreographed merger, to back its foreign subsidiaries with around 70% or 80% of CET1 capital instead of the previous requirement of 100%.

Swiss lawmakers earlier floated a separate concession pitch that required at least 50% CET1 backing. The proposal went at the hearing table in May 2026, as top government officials and UBS executives jointly faced parliamentarians in a heated meeting in Bern.

While Switzerland’s efforts to impose tougher capital requirements have weighed on UBS’s share price, it caused friction between Keller-Sutter and the banking biggie, pitting conflicting concerns like Switzerland’s financial stability and the venture’s competitiveness against each other.

In April, during her interaction with the Blick editorial team, Keller-Sutter panned UBS’ lobbying efforts, calling them “unprecedented.”

“You can have differing opinions. However, it is not common practice to challenge our institutions so forcefully. This is a rather new style in how a company interacts with the state. I have seen very intense referendum campaigns in the past, but the behavior of a private actor lobbying with this level of intensity is new,” she said.

The European country’s government estimates its policy roadmap would require UBS ‌to raise ⁠about USD 20 billion in additional CET1 capital. An 80% CET1 backing requirement, however, would reduce the figure to roughly USD 15 billion, analysts told Reuters, citing that a 50% CET1 demand could allow UBS to keep operating at current core capital levels.

“To support UBS’s competitiveness, some lawmakers hope to rely partly on less expensive Additional Tier 1 ⁠capital alongside CET1. The government sees AT1 as riskier. The proposals now under consideration in parliament envisage varying levels of AT1 entering the mix,” reported Reuters.

Lawmakers could also seek to link a fee UBS must pay for a planned public liquidity backstop—a cash safety net for big banks—to its capital requirements. The upper house committee, currently in charge of the banking bill, is seen as sympathetic to UBS’ argument that costly regulation will hurt its business and the economy. However, another section of lawmakers still wants to see stricter regulation for the ⁠bank when the legislation moves to parliament for voting later in 2026.

As per the sources, a compromise between 50% and 100% CET1 backing of UBS’s foreign units could, therefore, emerge from the committee as lawmakers pursue a proposal robust enough to pass a floor vote. However, on June 24, UBS’ CEO, Sergio Ermotti, said Swiss lawmakers will consider competitiveness along with financial stability while drafting new capital rules for ‌big banks.

“The political process and the parliament will focus with cool heads and fewer emotions around what needs to be ⁠done to achieve financial stability but also competitiveness,” Ermotti said, adding that competitiveness was vital for job creation.

“Without competitiveness, we will not maintain Switzerland as a global and vibrant financial center in the world,” he added further.

The post Strong UBS capital rules required for Switzerland’s financial stability, says minister appeared first on International Finance.

“Draft legislation submitted to parliament in April aims to introduce tougher rules to prevent a repeat of the Credit Suisse meltdown by requiring UBS to fully back its foreign units with Common Equity Tier 1 (CET1) capital,” reported Reuters.

Under new proposals, UBS, which successfully absorbed its domestic rival Credit Suisse in 2023 through a government-choreographed merger, would ⁠need to back its foreign subsidiaries with around 70% or 80% of CET1 capital instead of the government’s requirement of 100%.

Swiss lawmakers earlier floated a separate concession pitch that required at least 50% CET1 backing. The proposal went at the hearing table in May 2026, as top government officials and UBS executives jointly faced parliamentarians in a heated meeting in Bern.

Switzerland’s efforts to impose tougher capital requirements have weighed on UBS’s share price, causing friction between Finance Minister Karin Keller-Sutter and the banking biggie, pitting conflicting concerns like Switzerland’s financial stability and the venture’s competitiveness against each other.

In April, during her interaction with the Blick editorial team, Keller-Sutter panned UBS’ lobbying efforts, calling them “unprecedented.”

“You can have differing opinions. However, it is not common practice to challenge our institutions so forcefully. This is a rather new style in how a company interacts with the state. I have seen very intense referendum campaigns in the past, but the behaviour of a private actor lobbying with this level of intensity is new,” she said.

The European country’s government estimates its policy roadmap would require UBS ‌to raise ⁠about USD 20 billion in additional CET1 capital. An 80% CET1 backing requirement, however, would reduce the figure to roughly USD 15 billion, analysts told Reuters, citing that a 50% CET1 demand could allow UBS to keep operating at current core capital levels.

“To support UBS’s competitiveness, some lawmakers hope to rely partly on less expensive Additional Tier 1 ⁠capital alongside CET1. The government sees AT1 as riskier. The proposals now under consideration in parliament envisage varying levels of AT1 entering the mix,” the media house stated further.

Lawmakers could also seek to link a fee UBS must pay for a planned public liquidity backstop—a cash safety net for big banks—to its capital requirements. The upper house committee, currently in charge of the banking bill, is seen as sympathetic to UBS’ argument that costly regulation will hurt its business and the economy. However, another section of lawmakers still wants to see stricter regulation for the ⁠bank when the legislation moves to parliament for voting later in 2026.

As per the sources, a compromise between 50% and 100% CET1 backing of UBS’s foreign units could, therefore, emerge from the committee as lawmakers pursue a proposal robust enough to pass a floor vote.

The post Switzerland may go soft on capital requirements for UBS, says report appeared first on International Finance.

However, the ultimate price to taxpayers was heavy. About £35 billion was recovered through share sales and dividends, versus £45.5 billion injected, leaving a net loss on the bailout of roughly £10-10.5 billion. Indeed, official figures show the UK spent up to £137 billion supporting banks in 2008-09 (including loans and recapitalisations), though most of that has been paid back or written down, leaving a fiscal cost on the order of £30-35 billion.

As NatWest exits public hands, at a symbolic loss to the taxpayer, attention turns to the broader question raised by the BBC’s in-depth explainer: “Are banks today genuinely safer from collapse than they were in 2008?” In the immediate sense, the NatWest sell-off draws a line under one of the largest bailouts in UK history.

Nevertheless, the enduring issue is whether the banking system has learnt from the past. In 2008-09, Britain’s banks were on the verge of collapse. A run on Northern Rock in 2007 sparked panic, and Lloyds TSB had to rescue HBOS with £20 billion in state aid. Additionally, RBS’s aggressive expansion, including its £49 billion takeover of ABN Amro, left it insolvent and reliant on government support.

The government intervened with unprecedented measures, nationalising Northern Rock and Bradford & Bingley, and taking majority stakes in RBS and Lloyds Banking Group to prevent a more severe collapse. In retrospect, the Treasury insists it was “the right decision then to secure the economy,” as letting these banks fail would have risked a far greater economic shock.

Yet the intervening years have brought sweeping changes. Regulators and bankers now highlight that the system is fortified with stronger buffers and tighter rules. Global agreements, Basel III and subsequent “Basel 3.1” reforms, require banks to hold significantly more high-quality capital and liquid assets than before the crisis.

For example, British regulators originally proposed raising capital requirements substantially but scaled back the hike to under 1% of risk-weighted assets under Basel 3.1, a compromise they argue still “shocks” the system to cushion future shocks. Since 2019, the United Kingdom has implemented domestic ring-fencing regulations requiring its largest banks to legally separate core retail banking activities, such as deposit-taking and lending, from their higher-risk investment operations.

The aim is to protect ordinary savers if a trading or investment unit blows up. Meanwhile, the Bank of England has established a new oversight framework that includes the Prudential Regulation Authority (PRA) to monitor bank safety and the Financial Policy Committee (FPC) to identify systemic risks.

These bodies conduct regular stress tests to ensure banks can handle severe recessions. Since 2008, banks’ balance sheets have been bulking up; the major British lenders today hold far more common equity (shareholder capital) relative to assets than a decade ago. Indeed, the latest stress test for major UK banks notes that aggregate core capital ratios stand around 14.6% for major UK banks, well above minimum requirements, and none of the institutions fell below the stress-test hurdle rate in the 2023 scenario.

Key post-crisis regulatory reforms

Global Basel III standards and UK regulations have strengthened banks’ financial resilience by increasing Tier 1 capital requirements and implementing liquidity coverage ratios. Even before the latest stress test, British banks held sizeable “rainy-day” buffers. The bank’s Financial Policy Committee kept a 2% countercyclical capital buffer in place in 2023 to absorb potential losses without choking credit. These buffers are intended to ensure banks can take losses and still lend through downturns.

The ring-fence policy requires banks with large retail deposits to keep everyday banking (deposits, mortgages, loans) in a distinct entity, insulated from riskier market-trading businesses. This structural reform was explicitly aimed at “increasing the stability” of the financial system and preventing the costs of failure from falling on taxpayers.

A Bank Recovery and Resolution regime that aligns with European Union and international standards means that if a bank faces difficulties, its shareholders and creditors, rather than taxpayers, are responsible for absorbing losses through a process known as bail-in.

The BoE’s resolution framework aims for failures to be “orderly,” with customers either quickly compensated by the Financial Services Compensation Scheme (FSCS) or transferred to another firm. Under this framework, the FSCS guarantees deposits (currently £85,000) and aims to pay savers within days of a collapse. In light of the 2023 Silicon Valley Bank episode, the United Kingdom has even proposed raising the FSCS limit from £85k to £110k to better protect depositors.

Bankers and regulators now face strict oversight. The PRA carefully monitors banks’ leverage and risk, while the FPC employs macroprudential tools, such as adjusting capital buffers or loan-to-value limits, to manage system-wide risks.

Also, new governance rules (the Senior Managers and Certification Regime) hold individual executives personally accountable for misconduct. Collectively, these measures aim to catch problems early and force banks to repair their finances before a crisis spirals.

Visible effects of reform

British banks entered the post-pandemic period with stronger finances than before 2008. The Bank of England’s latest Financial Stability Report finds that major British banks are “strong enough to support households and businesses” even under worse-than-expected conditions.

In the 2022-23 stress test, bankers faced a scenario roughly as severe as 2019’s, with high inflation and deep recessions, and emerged well above the survival threshold. The aggregate capital drawdown (3.5 percentage points) was smaller than in 2019 (5.2 percentage points), partly because banks started with stronger balance sheets and higher deposit bases.

One analysis noted that “major UK banks would be resilient to a severe stress scenario” of synchronised global recession and market shock. Moreover, the banks’ liquidity buffers have grown; they hold large stacks of safe assets (government bonds and central bank reserves) that could be drawn down if funding became scarce. In short, by most quantitative metrics such as capital ratios, liquidity levels, and stress test results, the core banking system today is in far better shape than it was in 2008.

However, recent turmoil has shown that vulnerabilities still exist. The collapses of Silicon Valley Bank (SVB) and Credit Suisse in early 2023 were unrelated to the leverage crisis of 2008, yet they sparked global unease. These cases highlighted new risks in the environment of rising rates and lingering behavioural issues.

SVB’s collapse was primarily driven by unique factors, as its tech-focused clients withdrew deposits during a funding squeeze while rising interest rates devalued its long-term government bond holdings. In other words, SVB had little credit risk but a classic “liquidity and interest-rate” mismatch.

As one expert observed, SVB was deemed “safe” by regulators (its assets were government bonds), but they underestimated the pain from sudden rate hikes. Credit Suisse, by contrast, collapsed under years of deep losses and strategic missteps; even the recovery plans envisaged after 2008 proved “incomplete,” and Swiss regulators ultimately arranged a swift takeover by UBS at the eleventh hour.

Most analysts emphasised that these failures did not reflect a broad capital shortage across banks. Rabobank strategist Michael Every bluntly noted, “This is not a repeat of 2008…banks are much better capitalised generally,” and former US economic adviser Betsey Stevenson declared, “I’m not panicked – I don’t see a systemic solvency problem.”

Regulatory authorities took prompt action to contain the fallout, such as extending deposit guarantees and arranging for emergency liquidity, unlike the inconsistent response in 2008. SVB’s collapse raised alarms, prompting US regulators to reveal that by early 2023, banks were burdened with over $620 billion in unrealised bond losses from swift rate hikes, a latent risk if funding pressures emerge.

In Europe, the panic at Credit Suisse prompted tough talks. Authorities ultimately insisted on a private solution, wary of bailouts. Swiss policymakers privately admitted that post-crisis “reforms did not operate as intended” for Credit Suisse, and indeed, World Bank and IMF data show banks’ market valuations often lag their book capital, suggesting some risks might still be underpriced.

In Britain, the 2023 events left relatively modest scars. After SVB’s fall, the UK arm was bought by HSBC within days; other mid-size lenders were stable. The focus turned to deposit protection. The Bank of England, mindful that the FSCS limit was lower than in many countries, proposed raising insured deposits to £110,000.

Governor Andrew Bailey stressed that sound bank balance sheets are the real defence, but voters and politicians pressed for greater safety nets. Meanwhile, the BoE continued to tighten supervision. In March 2025, it announced a set of new “Future of Finance” reforms, including a credit supply buffer and adjustments to ringfencing rules, aiming to strengthen resilience without unduly hindering lending. London’s stance has been that while regulation will adapt to emerging challenges, the post-2008 reforms have significantly reduced the likelihood of a catastrophic financial collapse.

Expert perspectives reflect a cautious optimism. Many observers agree that global banking systems are safer overall than they were in 2008, meaning the likelihood of a run of large, unanticipated bank failures has diminished, but they also warn of new terrain.

For example, Bank for International Settlements research notes that “banks that were failing in 2008 still met their regulatory capital ratios,” and while capital and liquidity positions have improved since, the underlying lesson is that measurement is imperfect. Indeed, high leverage in risk-weighted terms and regulatory incentives to hold supposedly “risk-free” government bonds can mask tail risks.

The BIS recommends maintaining a substantial margin of safety beyond the minimum ratios. In the UK, despite regulators highlighting strong capital buffers, industry experts warn that banks still face emerging challenges such as a possible housing downturn, climate-driven financial risks, and the lingering effects of prolonged ultra-low interest rates. In addition, the sector’s profitability depends on keeping up lending, so there is tension between buffer building and supporting the economy.

Global reform divergence

The United Kingdom’s financial reforms since 2008 are widely considered among the most comprehensive, yet the global landscape remains fragmented. Different jurisdictions responded to the crisis with varying levels of intensity, speed, and regulatory innovation.

While the European country moved swiftly to ring-fence retail banking, enhance capital buffers, and establish independent oversight bodies like the Prudential Regulation Authority and Financial Policy Committee, other economies took alternative, sometimes more hesitant, routes.

The US responded to the financial crisis with the Dodd-Frank Act, which introduced broad reforms including stress testing (CCAR), the Volcker Rule (limiting proprietary trading), and a resolution regime for failing banks. However, political resistance and lobbying pressure led to a rollback of several provisions.

Notably, thresholds for stricter oversight were raised in 2018, which excluded banks like Silicon Valley Bank from heightened scrutiny, a move later criticised after its 2023 collapse. Unlike the UK’s strict ring-fencing, the United States relies more on balance sheet transparency and central liquidity backstops than structural separation.

The 2008-09 crisis revealed significant fragmentation within the EU. In response, the region implemented tighter capital rules through the Capital Requirements Directive IV (CRD IV), which is the EU’s version of Basel III. Additionally, the Single Supervisory Mechanism (SSM) and the Single Resolution Board (SRB) were established. However, progress toward completing the European Banking Union is still ongoing.

Crucially, the EU lacks a full common deposit insurance scheme, meaning depositor protections still vary by country, a potential source of instability in future crises. In contrast to the United Kingdom’s clearly defined resolution framework and deposit guarantee scheme (FSCS), the European Union’s mechanisms remain complex and politically sensitive.

Switzerland, once seen as a paragon of banking stability, faced a shock in 2023 with the failure of Credit Suisse. Despite Basel III compliance, years of poor governance, legal entanglements, and weak profitability culminated in a forced sale to UBS. Swiss regulators admitted post-crisis reforms did not function as intended in this case.

This failure reignited global debate about the effectiveness of so-called “too big to fail” policies. It also stood in contrast to the United Kingdom’s relatively smooth resolution and absorption of distressed banks, like HSBC’s takeover of SVB UK.

In Asia, countries like Singapore, Japan, and South Korea pursued conservative regulatory approaches post-2008, focusing on capital adequacy and strict supervisory regimes. Singapore, in particular, has emerged as a regional leader in integrating climate risk into stress testing.

However, much of Asia still faces rising risks from shadow banking, real estate overexposure (notably in China), and the lack of harmonised crisis resolution tools. In contrast, the United Kingdom’s resolution regime is among the few that aim for seamless depositor compensation and systemic containment.

Globally, the United Kingdom’s post-2008 regulatory architecture stands out for its structural clarity, proactive supervision, and crisis-readiness. While no system is immune to shocks, the European country appears better insulated against the specific contagion pathways that triggered past crises.

As shown by the failures of Credit Suisse and SVB, vulnerabilities often stem not just from capital adequacy, but from governance, market behaviour, and new-era risks—realities every major economy, regardless of policy strength, must continuously adapt to.

The sale of NatWest’s final shares closes the book on one chapter of public ownership and symbolises how much of the immediate crisis memory has faded. British banks today must navigate a different landscape. They enjoy stronger balance sheets and face tougher supervision, which by design makes a sudden systemic breakdown far less likely.

Following the 2023 financial turmoil, a former central banker summed up the situation by noting that the system is “safer but not safe enough.” Improvements in regulation and capital have indeed reduced the odds of a 2008-style meltdown, but critics caution that vulnerabilities have merely evolved, not vanished. The pandemic, the tech credit cycle, and geopolitical strains are new risk factors.

If another shock comes, whether it’s a sharp recession, an asset bust, or a new type of bank run, it will be fought on this reshaped battleground. Still, the swift responses from central banks and the higher buffers give authorities more tools than they had last time.

Banks may not be bulletproof, but they do have a much thicker shell than in 2008. The crucial question is whether regulators and bankers will continue to learn and adapt, ensuring that when the next crisis occurs, taxpayers and savers are genuinely better protected than before.

The post Is the British banking system truly secure? appeared first on International Finance.

Additionally, the wealth management division of the company revealed that net new assets for the first quarter of the year were USD 27 billion, up from USD 22 billion for the three months previous.

However, UBS warned that the bank’s wealth management division may be impacted by decreased lending and deposit volumes as well as decreased interest rates in Switzerland.

“In the second quarter of 2024, we expect a low-to-mid single-digit decline in net interest income in Global Wealth Management,” the bank said in a statement, as reported by the Reuters.

UBS’s CEO also said the majority of job cuts in its home market, Switzerland, will start from around the end of 2024 and continue into 2025 and 2026.

In a call with journalists, Sergio Ermotti said the cuts are not something the bank sees as “imminent” and that in the next months it will need “more resources to really manage the very complex integration process.”

In August 2023, UBS said it would axe 3,000 jobs in Switzerland alone after swallowing up its stricken rival Credit Suisse, a move expected to help the bank make significant cost savings.

Additionally, UBS reported that it had saved USD 1 billion in gross cost savings in the first quarter, bringing its total savings since the merger to USD 5 billion. It hopes to have saved an additional USD 1.05 billion, by the end of the year.

Switzerland’s biggest bank reported net income attributable to shareholders of USD 1.8 billion, above a consensus estimate of USD 602 million provided by the company and a USD 1 billion profit in the same period last year.

The first merger of two globally significant banks was completed in June of last year. The merger was arranged by Swiss authorities who were concerned that scandal-plagued Credit Suisse was about to fail. UBS reported losses for two straight quarters, as a result of the costs associated with acquiring its competitor.

Investors are optimistic about UBS’s prospects despite the shotgun nature of the takeover, considering the low acquisition costs and significant asset increase. The bank’s shares have increased by about 40%, over the previous year.

It is anticipated that this year will be crucial for UBS as it takes on some of the more challenging phases of integration, like merging disparate IT systems and legal entities and transferring clients from Credit Suisse to UBS.

Regulators are concerned because, in the event that the bank encounters difficulties, UBS’s balance sheet has grown to almost USD 1.6 trillion, almost twice the size of Switzerland’s GDP, as a result of the merger.

The post UBS marks first profit since Credit Suisse takeover, to go ahead with proposed job cuts appeared first on International Finance.

The acquisition took place on 19th March 2023, through an all-stock deal brokered by the government of Switzerland and the Swiss Financial Market Supervisory Authority. Credit Suisse, the then global banking major, got involved in a series of scandals, leading to market panic. Credit Suisse also saw its share price plunging after the leading shareholder, Saudi National Bank ruled out further investment into the bank due to regulatory issues.

The merger deal was rapidly agreed upon and implemented to prevent turmoil in the global financial markets. As the merger is about to complete one year, International Finance will evaluate the acquisition, and consider whether it has been a profitable endeavour.

Context, acquisition and challenges

Given the fact that Credit Suisse was in deep crisis and the timing of the merger deal also coincided with the closing down of three prominent American financial institutions (First Republic Bank, Signature Bank and Silicon Valley Bank), the marriage between the rivals saved the stock markets from utter chaos.

The acquisition of Credit Suisse by UBS had several strategic objectives. The first was to achieve synergies by streamlining operations, eliminating redundancies, and maximising resources to improve efficiency and cost-effectiveness. Additionally, it aimed to bolster market position and competitiveness by expanding the range of products and services offered, increasing the client base, and extending the geographic reach of the combined entity.

The acquisition aimed to mitigate risks and capitalise on growth opportunities in a highly competitive and volatile market. Ultimately, the goal was to create a stronger and more resilient banking conglomerate capable of navigating global financial challenges and seizing opportunities.

The process of merging two large financial institutions has been a complex and intricate undertaking filled with difficulties. Both entities had their own unique organisational cultures, business models, and operational structures, making it crucial to align and harmonise these aspects.

Minor bumps on the cost front

As of February 2024, UBS has announced its plan to restart share buybacks and find $3 billion more in cost savings from integrating Credit Suisse, as the bank now outlines the next phase of absorbing its fallen rival.

UBS now expects $13 billion in cost savings by the 2026 end, with half of it coming from slashing staff headcount. They had previously set a cost savings goal of over $10 billion. It is also worth remembering that since taking over Credit Suisse, UBS’ share price has jumped some 50%.

The bank has already completed the first phase of the Credit Suisse staff and other resources’ integration, but trickier stages will come now, in the form of thousands of job losses and the combination of different IT systems. UBS CEO Sergio Ermotti has already informed the media that the progress over the next three years would not be “measured in a straight line”.

However, UBS reported a net loss of $785 million for the June-to-September 2023 quarter, driven by costs tied to the Credit Suisse rescue deal, which came in at $2 billion.

UBS now predicts that the expenses will decrease in the coming months as the integration stages progress. However, the fact remains that when the merger happened, Credit Suisse was financially in a bad shape and now this legacy has fallen upon UBS.

Despite the third-quarter loss, shares in UBS gained 4% in Zurich, as the banking group went through a strong inflow of funds, a phenomenon which displayed high confidence from the clients.

“UBS saw $22 billion of net new money flow into its global wealth management business, as it gained new clients and won back assets from those who had pulled funds immediately before and after the emergency takeover. That figure includes flows into Credit Suisse’s wealth management unit, which turned positive for the first time in 18 months,” stated CNN, while mentioning about UBS attracting net new deposits of $33 billion, with two-thirds of the amount coming from legacy Credit Suisse clients.

Tactical staff downsizing

Any merger and acquisition activity comes with staff restructuring, along with the demon called ‘job losses’. As per the reports, UBS has intensified its efforts to reduce costs and increase earnings by aggressively cutting thousands of jobs.

The Swiss Bank aims to save $13 billion by 2026 by cutting gross costs. In August 2023, it announced plans to cut at least 3,000 jobs in Switzerland.

As of February 2024, the headcount at the merged group has been reduced to 112,842 employees at the end of 2023, down from 120,000 post the merger.

UBS has managed to reduce costs by $4 billion, partly through layoffs, and the process accounts for nearly one-third of the venture’s current targeted amount. In the 2023-24 fourth quarters alone, the company cut more than 3,100 positions, bringing its total headcount to fewer than 113,000.

UBS CFO Todd Tuckner has revealed that a significant portion of the latest round of job cuts consisted of staff who were formerly employed in Credit Suisse’s investment bank. These layoffs mostly occurred in the United States and the United Kingdom, with staffers from other parts of the world feeling the pinch too.

For the October-to-December 2023 quarter, UBS recorded a net loss of $279 million, marking its second consecutive quarterly loss, partially attributed to expenses related to the acquisition deal.

UBS’s team of managing directors now possesses 177 individuals. Only around 30 of them reportedly are from Credit Suisse. The number of people promoted to the managing director rank in UBS is now on a downward trajectory. In 2021, it was 208, followed by 183 the following year.

UBS’ effort to make its organisation leaner also coincides with weak customer demand and China’s economic slowdown. Relationship managers were among the posts that faced the elimination heat in Singapore and Hong Kong. These teams were purchased from Credit Suisse during the March 2023 merger.

Singapore and Hong Kong, which traditionally hosted China’s ultra-wealthy, saw UBS fighting low consumer demand and activity levels in 2023. The region’s profit before tax for the wealth management division decreased by 9% in the second quarter compared to the same period in 2022.

China’s rebound from COVID has entered into a stall, with the real estate crisis taking a toll on its economy further. China saw one of its weakest GDP expansion rates in decades (3% in 2022).

Other important metrics

In February 2024, UBS announced a big payout to shareholders. However, CEO Ermotti warned about his venture facing a substantial restructuring before reaping the benefits from its Credit Suisse takeover.

“The year 2023 was a defining year in UBS’s history with the acquisition of Credit Suisse. Thanks to the exceptional efforts of all of our colleagues, we stabilised the franchise and have made tremendous progress in the integration,” these were Ermotti’s statement in UBS’ earnings call, a confident one despite the bank reporting a net loss of $279 million in the final three months of 2023. There was a silver lining in this figure as it was less than the nearly $500 million forecast by analysts.

For the full year, UBS bagged a net profit of $29 billion in 2023. Ermotti also highlighted clients entrusting the bank’s global wealth management division with $77 billion in new assets since the Credit Suisse acquisition.

UBS suspended share repurchases after the acquisition and now plans to reinstate them in the coming months, with the plan to buy back up to $ 1 billion worth by the 2024 end. The venture will raise the dividend it pays to its shareholders to $0.70 per share for 2023, up from the 2023 tally of $0.55.

Still, Ermotti, while interacting with the analysts, preferred to express caution, as he said, “We need to deeply restructure. Our plan is not relying on overly optimistic assumptions about market activity.”

After the merger with Credit Suisse, UBS was able to save $4 billion in cost savings in 2023 and it has raised the target to $13 billion by 2026. However, according to the venture’s chief financial officer, Todd Tuckner, expenses are expected to remain high in 2024 as two-thirds of the integration costs are anticipated to be incurred this year.

UBS had the option of getting Credit Suisse listed separately across the stock markets. Nevertheless, it decided to fully absorb its former rival. Then it identified the problem area, which was Credit Suisse’s investment bank, as the division was at the centre of scandals and crises that brought the venture’s demise.

As per senior equity analyst Andreas Venditti, UBS has done a tremendous job with the Credit Suisse takeover as the business saw a strong increase in dividends, resumption of share buy-backs and higher cost savings target. However, he still believes that the financial institution needs to do a lot more to keep the momentum going.

Wealth management aspirations

With the Credit Suisse takeover, UBS got an unprecedented 25% of the deal-making fee pool in Switzerland in 2023, which helped the venture bring in $251 million in domestic investment banking fees which translates into a 24.9% market share. Bank of America came in second with $91 million in deal-making revenue (a 9.1% share).

The Swiss investment banking market has long been dominated by Credit Suisse and UBS, with Switzerland firmly establishing its ability to fend off the prominence of Wall Street banks in its domestic market.

As financial platform Dealogic decoded UBS’ deal-making successes last year, it found out that Credit Suisse’s revenues were added to these figures, suggesting the size of the Swiss market UBS will defend the merger. In 2022, Credit Suisse brought in 15.1% of the Swiss deal-making fee pool, while UBS grabbed 9%.

UBS’s 25% of the Swiss fee pool in 2023 was the venture’s biggest proportion on record as it bettered Credit Suisse’s 23.5% market share in 2014. In fact in the category of dealmaking, UBS has become a European giant post the Credit Suisse merger, as in terms of market share, only Spain-based Santander comes in the second position with 12% of the domestic investment banking fee pool.

Talking about the 2024 aspirations, UBS has set its eyes firmly on markets like the United States and Asia. The venture aims to achieve at least $5 trillion in invested assets across the world by 2028, a vision which was laid out during the presentation of the financial giant’s 2023 results. To realise the goal, the company will be required to add a minimum of $1.15 trillion from its current $3.85 trillion in invested assets.

The Swiss banking major aims to achieve $100 billion in net new assets (NNA) per annum through 2025 before optimising for greater capital efficiency to achieve $200 billion in NNA annually by 2028. UBS is also eyeing to reduce its underlying cost-income ratio to 70% by 2026, down from 87.7% at the 2023 end.

Asia will likely continue to play a prominent role in UBS’ growth roadmap. Let’s check the figures. UBS’ wealth management arm in Asia saw its assets surge by over $200 billion in 2023. Overall invested assets totalled $645 billion, marking an increase of 51%, or $217 billion, compared to $428 billion at the 2022 end.

Net new asset inflows were $13.5 billion for the fourth quarter. The bank recorded a pre-tax profit in Asia Pacific of $97 million in the 2023 fourth quarter, down 45.5%. This was driven by the consolidation of Credit Suisse revenues which were partly offset by lower net interest income. Loans decreased 4% to $45.8 billion, primarily reflecting $2.5 billion of net new loan outflows.

The bank’s cost-income ratio in the region also soared from 69.7% to 87.7%, coinciding with an expanded workforce, as the number of client advisors grew to 1,101 compared to 847 at 2022 end. Compared to Asia, UBS earned net new assets worth only $21.8 billion in other parts of the world.

UBS has recently undergone a revamp with the aim of achieving growth in Asia in a more diversified manner. Prior to the merger with Credit Suisse, UBS was already a dominant player in the Asia-Pacific region. Following the merger in March 2023, UBS gained access to the South APAC clientele of its now-defunct rival.

As per the reports, within its APAC wealth unit, UBS has set a deadline of end-2024 to complete the migration of Credit Suisse clients and products in Hong Kong and Singapore.

UBS was the top wealth advisor in the Asia-Pacific in terms of value and volume, stated GlobalData’s Deals Database, as the Swiss banking major advised on 32 deals worth a total of $27.7 billion in 2023. JP Morgan was placed second, advising on deals worth a total of $26.1 billion, followed by Citi, which advised on deals worth $21.8 billion.

GlobalData lead analyst Aurojyoti Bose said, “UBS was the top adviser by volume in 2022 as well. Meanwhile, its ranking by value took a massive jump and it went ahead from occupying the 27th position in 2022 to top the chart in 2023. UBS advised on seven billion-dollar deals, that also included one mega deal valued at more than $10 billion. Against this backdrop, UBS registered a 123.5% jump in the total value of deals advised in 2023 compared to 2022.”

When the Swiss government-choreographed merger happened between Credit Suisse and UBS, there were apprehensions about the move’s future, as Credit Suisse was marred by scandals and financial irregularities. Analysts were concerned about UBS’ future. UBS did experience consecutive quarterly losses, which was unprecedented in its history of operations.

By February 2024, the venture has also achieved a few other firsts, be it becoming a European giant in the field of deal-making or maintaining its status as the top wealth advisor in the Asia-Pacific region since 2022. At the same point of time, the venture has also been strategically brilliant, when it comes to restructuring the staff. Instead of blindly mass firing everyone, it has taken a detailed look at the talents in Credit Suisse who can help the Swiss banking giant to continue its expansion and has inducted those faces into their organisational folds.

CEO Sergio Ermotti sees his venture’s progress over the next three years not being something “measured in a straight line.” If no major bump comes in those three years, the much-debated Credit Suisse-UBS merger may very well turn into a much-celebrated one.

The post UBS’s Credit Suisse takeover: From crisis to success appeared first on International Finance.

In its April 2023 ‘Global Financial Stability Report’, the International Monetary Fund issued a warning that “financial stability risks have escalated quickly as greater concerns about inflation and fragmentation have put the resilience of the global financial system to the test.”

Smaller emerging economies with significant debt and declining repayment capacity have the most unstable banks. The IMF expects a dire financial climate due to increased geopolitical concerns, unmanageable debt, rising inflation and interest rates, and tighter monetary conditions. It was closer than anyone admitted during those stressful March days.

“The lightning-fast, forced takeover of Credit Suisse by rival UBS had helped to avoid a national calamity,” Swiss Finance Minister Karin Keller-Sutter said in Washington in April.

Switzerland’s central bank director, Thomas Jordan, said the takeover prevented Credit Suisse from “being the first domino in a systemic collapse.”

A systemic crisis

The crises around United States’ banking majors like Silicon Valley Bank, Signature Bank, First Republic Bank and their Swiss counterpart Credit Suisse have revealed systemic problems that require immediate attention. There is a contagion worry around the financial circles in Europe and the United States, and this worry is now bothering regulators.

The Swiss government deserves recognition for moving fast and decisively to rescue Credit Suisse, as its quick deployment of resources prevented a 2008-style banking catastrophe.

On the other hand, American depositors were so nervous about the future of their deposits, that they started withdrawing those capital en masse from the domestic banking sector. The Federal Reserve too expressed worry, which didn’t help the matter either.

“It appeared like contagion from SVB’s bankruptcy may be far-reaching and inflict damage to the broader financial system,” said Fed vice chairman of Supervision Michael Barr.

Michael Barr also said that if the customers can’t access their money, depositors may start distrusting US commercial banks’ safety and soundness.

Potential risky behaviour

As we shall see, both banks somehow slipped the leash of risk-averse management that authorities imposed on them after 2008. The obvious question is: have the global giants returned to the reckless behaviour that caused the financial crisis?

After the Credit Suisse panic, French and German authorities raided five giant banks for possible money laundering and tax evasion on behalf of wealthy clients, highly illegal activities that had enraged regulators after the 2008 revelations of egregious behaviour.

Since 15 years of reforms were designed to eliminate banking shocks, the question is significant. National regulators ordered a wide range of measures that separated investment from deposit banking, boosted capital ratios and liquidity, sheeted home responsibility onto specific senior executives, eliminated sky-high undeserved bonuses, and, most importantly, ensured a tottering institution could collapse without triggering a house of cards, as happened in 2008. No bank could be “too big to fail.”

Meanwhile, authorities scrutinized systemically significant institutions (G-Sibs), which bankers sometimes hated.

Despite all this regulation, 49-year-old Silicon Valley Bank failed in 24 hours after what the US Federal Reserve called “a devastating and unexpected run by its uninsured depositors,” while once-mighty Credit Suisse was bundled into USB, its supposed rival, with indecent haste before it failed. Credit Suisse’s viability has long troubled Swiss regulators.

Credit Suisse might earn over $17 billion in 2022 from financing Swiss railroads. The second-largest Swiss bank seemed impregnable until a year ago. Swiss banks are known for their strength, dependability, and prestige. The major Swiss regulator, FINMA, is also held in high regard. The Swiss government had to quickly raise $122 billion to save Credit Suisse. The new guidelines say even a G-Sib’s failure shouldn’t cost taxpayers.

In the US, SVB was not for sale, even at gunpoint. The Federal Deposit Insurance Corporation, which ensures financial stability and confidence, followed the book, or “hierarchy,” as central bankers believe. The FDIC swiftly guaranteed SVB and Signature Bank’s insured deposits after a run on deposits caused them to fail. Troubleshooting regulators took over after the US Fed fired senior managers overnight.

Most significantly, the Fed guaranteed up to a year’s worth of liquidity to other banks, preventing future runs. As per the post-2008 hierarchy, SVB equity and liability holders lost their investments.

Speculation & effects

These failures have various effects. Credit Suisse, with operations in the US, Europe, the Middle East, and internationally, has substantially higher numbers. The effects may last for years. UBS, with $1.1 trillion in assets and $34.6 billion in sales, may be able to swallow its rival, mainly due to its doubtful assets. The takeover creates a $5 trillion entity, but nobody knows how much of Credit Suisse’s assets will be written down.

Credit Suisse stockholders lost money, and FINMA will value its tier-one bonds at zero. UBS will buy Credit Suisse for $3.3 billion, a fraction of its pre-failure value.

Reading between the lines, the US Fed was astounded by Silicon Valley Bank’s collapse. Supervisor Michael Barr told the House Committee on Financial Services that management’s failure to manage liquidity risk, its largest responsibility, and the run killed the bank. According to media reports, management prioritized development over stability and ignored internal stress testing that highlighted issues.

Why run, and why now? The Fed seemed bewildered and embarrassed. Michael Barr stated, “SVB’s failure warrants a full assessment of what happened, including the Federal Reserve’s monitoring of the bank.”

It is already known that SVB had a focused business model and that its customers were mostly in the high-risk but potentially lucrative technology and venture capital industries. The bank had been established for over four decades, but in the three years leading up to 2022, it tripled its assets as the IT sector boomed. Concerns should have arisen. Before 2008, fast-growing institutions like the Royal Bank of Scotland failed on both sides of the Atlantic.

The Fed says SVB invested fast-growing deposits in longer-term securities with higher yields without the necessary expertise: “The bank did not effectively manage the interest rate risk of those securities or develop effective interest rate risk measurement tools, models, and metrics.”

The bank also neglected its liability risks. Senior executives fell into the liability-asset mismatch trap. Media reports suggest some personnel had severe concerns about their boss’s decisions. SVB’s troubles stemmed from the technology sector’s need to hold cash deposits in the bank to cover salaries and operating costs. However, cash deposits can be removed at will and often are.

On March 8, SVB realized it wasn’t liquid enough and announced a $1.8 billion loss in a securities transaction but expected to raise funds the following week. That alerted its clients, and some of America’s brightest examined their bank’s balance sheet.

Michael Barr stated, “They did not like what they saw,” in typical US fashion.

On March 9, SVB clients withdrew over $40 billion, demonstrating how insecure a supposedly well-funded bank may be. SVB collapsed the following day as other depositors followed suit. The nightmare of regulators and bankers, an unstoppable run by depositors, took SVB down in three days.

Slow decline

Credit Suisse’s demise appears to be a case of bad management and, as the US Fed admits, supervisory errors, while SVB’s was a case of terrible management and political interference. Unlike in the US and UK, FINMA did not release more than 100 red flags to the bank regarding its many faults during its slow decline.

Credit Suisse was in trouble by 2021 due to $10 billion in losses on client funds invested in Greensill Capital, a massively indebted British supply chain finance firm, and $5.5 billion in US hedge fund Archegos Capital Management.

The integrated global finance sector failed both in 2021. Credit Suisse lost the most in these disasters. Former bank CEO Thomas Gottstein said these blunders were “awful.” Credit Suisse was unlikely to recoup any capital in Greensill and possibly none in Archegos at the time of writing.

These disasters followed years of risky investment banking by Credit Suisse, which had brought down US banks like Lehman Brothers in 2008. Wealthy clients fled, the share price fell, and the bank’s credibility, any institution’s most valuable asset, collapsed. Swiss Info, a Swiss Broadcasting Corporation magazine, says that the bank’s leadership is to blame.

Events quickly deteriorated. In October 2022, Swiss authorities installed a new management team to fix the investment bank firm. “The bank will build on its outstanding wealth management and Swiss Bank franchises,” it said, returning to its roots.

At the time, FINMA Chairwoman Marlene Amstead called this spring clean “a start in the correct direction towards risk reduction.”

The bank had a record-breaking client fund run in the same month. In the fourth quarter, withdrawals reached over $155 billion, and although Credit Suisse survived again, the writing was on the wall.

The two occurrences highlighted “too big to fail” for systemically important organizations. The financial crisis reforms created a two-part worldwide norm. The bank is either a “going concern” that can be saved or a “gone concern” that will be properly buried. The global standard defines a “going” bank as one that has enough capital to cover current business losses and a “gone” bank as one that can be restructured or liquidated.

The Credit Suisse takeover is the first real-world test of the “gone” part of “too large to fail.” No banking authority is ignoring this case study, which has garnered global attention. FINMA’s Marlene Amstead believes Switzerland did the right thing in a communal solution combining taxpayer money, the government, regulators, the central bank, and UBS’s consent.

However, Credit Suisse may have caused a financial disaster if it failed. Does that mean the entire “too big to fail” architecture must be overhauled after the debacle?

Regulatory failures

In a bank disaster, regulators must take responsibility, and they typically do. The Bank of England’s “regulation-lite” faith in management was abandoned during the Great Financial Crisis.

After SVB was classified as a higher-risk “big and foreign financial organization” with $100 billion–$250 billion in assets, its supervision was transferred to a new team. It’s not a G-Sib, but any organization with up to $250 billion in assets is important.

The new team instantly rated its enterprise-wide governance and controls “deficient-1” due to management concerns. Supervisors met with management in November 2022 to discuss rising risks, particularly in interest rates and liquidity, which pose some of the greatest threats to a bank’s integrity. They also worried about rising interest rates affecting SVB and other banks.

The supervisors did not anticipate that it would collapse so quickly. Banks and regulators often clash. While most banks follow the rules and want to follow supervisors’ advice, some must be judged. Because of judicial enforcement, regulators usually win with resistant banks.

Most of FINMA’s 40 annual enforcement proceedings in Switzerland never go public. FINMA conducts 600–700 investigations a year, which require inspectors to knock on doors “to clarify suspected infractions.” In nine out of 10 situations, banks take corrective action when presented with evidence, but Credit Suisse’s refusal was a significant issue.

FINMA states that institutions rarely ignore investigations and multiple judgments. Thus, Swiss authorities are privately discussing Credit Suisse’s case. No country can accept an institution that bullies the regulator, and Switzerland was exceptionally weak.

Central bankers like the Bank of England, the US Fed, and others can name names.

“As the events around Credit Suisse illustrate, our instruments reach their limits in severe cases,” says Marlene Amstead, who wants additional power. “An extension is worth considering.”

Historically, politicians have been hesitant to grant FINMA the necessary authority. Unlike France, the UK, and the US, FINMA lacks the ability to impose fines. Following a prolonged discussion, Swiss politicians ultimately voted against the merger of Credit Suisse and UBS.

Functioning properly

In a broad internal evaluation, the Fed asks if the regulatory regime is effective.

“Once discovered, can supervisors discern concerns that constitute a serious danger to a bank’s safety and soundness? Supervisor Michael Barr asked the House of Representatives, “Do supervisors have the instruments to reduce threats to safety and soundness?”

“The failure of SVB highlights the need to go on with our work to increase the resilience of the banking system,” he added.

Thus, supervisors should be tough before it’s too late. The US Fed wants to apply Basel III regulations to smaller banks like SVB because they can withstand losses better than the G-Sibs. The financial sector will be closely monitoring the Fed’s proposed new set of stress tests, which cover a wider range of risks and reveal contagion channels. That implies that present stress-testing technology fails.

Contagion is often irrational. In the current banking system, insured depositors get their money out, but dread spreads without explanation. Fintech’s emergence represents a hidden weakness in the post-2008 global banking system. They’re faster, cheaper, and more customer-friendly, weakening the giants’ financial dominance. For example, US banks are smaller.

US Fed Governor Michelle Bowman said, “De novo [new] bank development has largely frozen for the past decade during a period when financial services have quickly evolved.”

New banks are smaller, more conservative, and, surprisingly, safer.

“As we have seen over time, they often outperform larger banks during periods of stress like the pandemic and during the 2008 financial crisis,” Governor Michelle Bowman said.

They also treat small businesses better during rough times. That may drive depositors away from giants. Bank capital may be insufficient in the future. Regulators admit they weren’t before the Great Financial Crisis, and the latest concern is pushing for a reassessment.

Undercapitalized banks have serious repercussions. The 2008 banking crisis caused the longest and deepest recession since the Great Depression. America, the world’s wealthiest nation, saw six million foreclosures, 10 million people fall into poverty, and six years of job losses. Research suggests the impacts persist.

Central banks are worried about the resumption of the run on deposits, but nobody is predicting a worldwide banking collapse. In a post-Credit Suisse debate, Bank of England Governor Andrew Bailey said, “We’re in a very different place, and I genuinely don’t see this as the start of a systemic financial crisis.”

No central banker would disagree, but the tremors created by SVB and Credit Suisse’s collapse have revealed systemic flaws that must be fixed.

The post Is global financial system failure-proof? appeared first on International Finance.

In Switzerland, the balance sheet of banks fell 6.9% to 3,339.7 billion Swiss francs (USD 3.76 trillion) in 2022, said the Banking Barometer, which talks about the annual report on banking industry trends.

“The downturn among the big banks was especially large and probably driven mainly by shifts in customer funds at Credit Suisse,” the report said.

“Credit Suisse’s high liquidity requirements were also seen as playing a part in sight deposits held overnight at the Swiss National Bank falling more sharply in 2022 than in the previous ten years,” the study noted further.

“There was a certain amount of rotation into time deposits, but a large share of the decrease was caused by shifts in customer funds at Credit Suisse in October 2022,” it concluded.

The Swiss Bankers Association also acknowledged that Credit Suisse’s collapse and subsequent takeover by UBS have raised questions over the potential damage to the Swiss banking industry’s reputation.

Meanwhile, the head of Switzerland’s financial watchdog FINMA has resigned nearly six months after the body drew heavy criticism for failing to prevent Credit Suisse’s collapse.

Urban Angehrn will step down at the end of September 2023, FINMA has said in a statement.

“Being able to contribute to the sustainable improvement of the quality of the Swiss financial centre as CEO of FINMA was a unique challenge for me, and one that I tackled with all my might. However, the high and permanent stress levels had health consequences. I have considered my decision carefully and have now decided to step down,” Angehrn said.

FINMA came under scrutiny for not halting the string of scandals at Credit Suisse, whose collapse-like crisis in March 2023 led to a liquidity crisis.

The stricken bank was eventually bought by UBS in a state-engineered 3 billion Swiss franc (USD 3.37 billion) rescue. However, the acquisition, the biggest banking deal since the 2008 financial crisis, has triggered scores of legal cases brought by disgruntled investors who lost money when bonds were wiped out or were unhappy with the exchange ratio for their stock.

FINMA’s Deputy CEO Birgit Rutishauser will act as the watchdog’s interim CEO from October 1.

Meanwhile, UBS will absorb Credit Suisse’s Securities Research service in September 2023, thereby wrapping the business into its own research operations, the bank said in a letter seen by Reuters on Tuesday.

Institutional customers will now be switched to UBS Global Research while Credit Suisse’s Wealth Management clientele will not be affected by the transition as they have access to UBS IB Research, a UBS spokesperson told the media.

Credit Suisse will also reduce the volume of new markets business from September 22 as UBS moves to wind down trading in global securities at its former rival.

The post Credit Suisse collapse results in balance sheet contraction of Swiss banks: Report appeared first on International Finance.

When Silicon Valley Bank could not meet its clients’ deposit demands in the second week of March, we saw a traditional bank fail. Next came New York’s Signature Bank, thus forcing the Federal Reserve and the Joe Biden government to hurry to stop the emergence of a nationwide bank crisis. Financial institutions have been given access to liquidity, and customers have been repeatedly assured that their savings are secure.

These hasty responses have given indication to the world that the US government was unprepared for such a crisis situation and is now working feverishly to prevent any further hints of financial contagion. The fear is still palpable in the world financial markets.

The bond market panicked as the share price of the world’s largest investment bank, Credit Suisse, plummeted overnight. To make matters worse, the iconic bank has been taken over by its Swiss rival UBS for a deal worth USD 3.25 billion.

What happens next is the crucial question. You have trouble brewing in another American financial institution, First Republic Bank, whose shares have crashed by over 46% and it needs to raise more funds despite a USD 30 billion rescue by the US authorities.

The Credit Suisse Catastrophe

Now-defunct Credit Suisse’s credit default swaps saw a sharp price increase in 2017.

Simply put the increased possibility that the investment bank wouldn’t be able to pay off all of its loans and its ability to fund itself worried the financial markets. In addition to the numerous scandals the bank had experienced, its profitability and the future of its investment banking section were also under scrutiny.

Since several years ago, its share prices had been steadily declining. By March 2020, it had dropped from 16.49 CHF in 2018 to 6.66 CHF. The stock price did well throughout the COVID period, but it dropped significantly once more in March 2021.

Time travel to September 2022, when the company’s credit default swaps spiked and its stock price plummeted sharply, and the CEO was required to reassure the market that the firm’s capital base, or cash buffers, was strong.

The second-largest bank in Switzerland, however, was facing a “difficult moment,” according to the CEO’s statement in early 2023. The share price had declined over the last six months while investors withdrew their funds from the company.

Notably, the Saudi National Bank, which owns 9.88% of Credit Suisse, decided against purchasing additional shares due to regulatory reasons. Saudi National Bank also stated that while it believed the company to be in a good position, it needed more resources to support commercial growth.

Given how tense market players had been, the timing of the Saudi bank’s remarks was terrible for the global financial system. Bond traders, in particular, tended to act hastily and ask questions later.

Bond Market Turbulence

Undoubtedly, the price changes in the bond markets over the past week were extraordinary.

Bond investor Angus Coote said, “These moves in the bond market are mind-blowing. A week ago, the yield on two-year Treasuries (US government bonds) was over 5%. They are currently at 3.88%”.

Again, this indicates that traders in the money market around the world have recently been fervently purchasing government bonds. Why? Because they are considered reasonably safe assets in volatile times.

It also makes sense because the government backs the investments issuing them. Bond prices decrease when interest rates go up and vice versa. A declining bond market indicates that interest rates increase to bring down the economy’s temperature.

The opposite is also true: when bond prices rise, interest rates fall, indicating a massive financial storm is on the horizon that will force central banks to stop raising rates and start slashing them.

Not The Great Financial Crisis 2.0

The logical follow-up query is what this storm might look like. However, what we’re witnessing isn’t a continuation of the great financial crisis that began in 2008. Back then, “the world’s largest banks were discovered to be swimming nude when the tide ran out,” as Warren Buffett memorably said.

The world’s largest investment banks are now classified as being “too big to fail” under a new regulatory framework that was put in place as a direct result of that financial crisis. As a result, they must maintain sizable cash reserves or other forms of safety to survive another financial crisis.

However, former United States President Donald Trump ensured that thousands of mid-tier regional American banks were exempt from these regulations.

This means that Silicon Valley Bank had unrestricted access to invest billions of dollars of its deposits in US Treasury securities without any “insurance” to safeguard client funds if the markets turned against the bank.

The banks did just that, as it turned out. The value of Silicon Valley Bank’s investment decreased when interest rates increased. When hundreds of small software companies went to the bank to withdraw money when interest rates were also climbing, it became an issue.

Silicon Valley Bank had to sell its investments at a significant loss to meet customer needs. It caused alarm that the bank couldn’t keep up with client requests, and a bank run followed. Yet, once more, the regulatory response was prompt. The regulators forced the bank to close its doors to assuage consumers’ worries.

The idea was to create a fund for paying out deposits funded by the banking system. Janet Yellen, the secretary of the Treasury, stressed that it wasn’t a taxpayer bailout. Yet, from where will banks be able to replenish this fund? Their clients. The crucial question, therefore, becomes: When do regulators stop assisting financial institutions in need?

If the response is “never,” then we have entered a new era of capitalism. If the answer is when they determine it will be too expensive for them, then the 2007-08 like scenario is not far off.

The post Global banking crisis: Something catastrophic is coming appeared first on International Finance.

The closure of the 167-year-old banking giant gave the flashback of the 2007-08 horror when Lehman Brothers (1857-2008) went bankrupt. Before the UBS takeover, Swiss authorities pushed for the realisation of a borrowing plan worth USD 54 billion to help the bank stay afloat. However, the investors and customers pulled out their money. Credit Suisse’s monetary outflows topped 10 billion Swiss francs after March 15, 2023, when the bank’s share price dropped by nearly 25% after Saudi National Bank, its largest investor, expressed its inability to provide any more financial assistance.

The declaration resulted in the market price of the bank’s unsecured bonds, set for maturity in 2027, dropping to a low of 33% of their par value on March 15, down from being valued at 90% at the month’s beginning. The situation deteriorated faster and resulted in the Swiss government jumping into the fray.

Why Is It So Important?

Credit Suisse is among the 30 financial institutions known as globally systemically important banks. It had its primary customer base mostly big companies and wealthy individuals.

Credit Suisse was known for its CreditRisk+ model of risk assessment in loans. Its insurance products are popular in the Swiss domestic market. Some 20–40% of its revenue has been from the bank’s private banking services, which have been among its higher profit-margin divisions.

Credit Suisse produced one of the six hedge funds following European stock indices. Apart from having a 30% ownership in hedge fund investment firm York Capital Management, whose products were being sold by the financial institution to its private banking clients. Credit Suisse is also used to manage the financial instruments of the Dow Jones Credit Suisse long/short equity index.

The Zurich-headquartered company was one of the nine global “bulge bracket” banks providing services in investment banking, private banking, asset management, and shared services.

The Bank Was Least Affected During 2007-08 Crisis

Credit Suisse, which had high-profile financial backers like Saudi National Bank, Qatar Investment Authority and Harris Associates, was formed in 1856 to fund Switzerland’s rail system. It also lent money for the country’s electrical grid and the European rail system. It made its transition into a retail banking entity during the 1900s, followed by a partnership with New York-based First Boston in the late 1970s. It acquired blue chip London stockbrokers Buckmaster & Moore In 1987, Bank Leu (oldest Swiss Bank ever) in 1990, Swiss Volksbank in 1993, Winterthur Group in 1997, asset management division of Warburg, Pincus & Co. in 1999 and Donaldson, Lufkin & Jenrette in 2000.

The Wall Street Journal in 2008 reported, “Credit Suisse survived the credit crisis better than many competitors.” Back then, it had USD 902 million in write-downs for subprime holdings and the same amount for leveraged loans. However, it didn’t face the need to borrow from the government level.

However, Its Record Was Always Under The Scanner

Despite being among Fortune Magazine’s ‘Most Admired Companies’, Credit Suisse reportedly offered criminals, corrupt politicians and controversial secret service chiefs a safe haven for their assets.

In 1999, it faced heat from Japan’s Financial Supervisory Agency for “window dressing” (a practice of selling derivatives that are often used by bank clients to hide losses).

In 2006, Credit Suisse acknowledged misconduct on its part in helping Iran and other countries hide transactions from US authorities.

In 2007, two Credit Suisse traders pleaded guilty to mismarking their securities positions to overvalue them by USD 3 billion, avoid losses, and increase their year-end bonuses.

In 2009, Yellowstone Club founder Tim Blixseth sued Credit Suisse as the latter attempted to collect USD 286 million in loan debt during Yellowstone’s bankruptcy proceedings.

In the same year, the US Department of Justice reached a USD 536 million settlement with Credit Suisse over accusations that the bank assisted residents of the International Emergency Economic Powers Act sanctioned countries to wire money illegally from 1995 to 2006.

Forex Manipulation in Europe in 2013, Tax Fraud Conspiracy in the United States in 2014, the 2015 Malaysia Development Berhad Scandal, the 2017 Mozambique Secret Loans Scandal, and Violation of US Foreign Corrupt Practices Act rocked the company’s image.

In 2018, tennis legend Roger Federer was urged by climate activists to break his sponsorship ties with Credit Suisse due to the company sharply increasing its financing for coal businesses during the 2016-2017 period.

In 2019, Pierre-Olivier Bouée, the then Credit Suisse chief operating officer was accused of snooping on another senior executive.

The bank also faced regulatory actions in Switzerland in 2022 for allowing a Bulgarian cocaine trafficking gang to launder cash between 2004 and 2008. In the same year, details of 30,000 Credit Suisse customers were leaked to a German media outlet.

After the Ukraine war broke out, Credit Suisse asked hedge funds and other investors to destroy documents linking Russian oligarchs. The US House Oversight Committee immediately launched a probe into the firm.

And Yes, The Doom Was Predicted

In October 2022, ‘rumours’ on social media projected the demise of the scandal-hit bank, thereby putting pressure on its stocks. The Swiss National Bank started following the situation closely, amid Credit Suisse suffering massive losses in 2021 from the Archegos and Greensill financial scandals.

Credit Suisse offered to buy back USD 3 billion worth of debt, and put Zurich’s Savoy Hotel on sale, apart from assuring its investors that the bank was stable, even though its wealthy clients were moving their assets out of the bank. There were ‘talks’ about a fresh infusion of USD 500 million from Saudi Crown Prince Mohammed bin Salman, but now the bank is history and taken over by its rival UBS.

Conclusion

Credit Suisse was known for its ability to understand the market pulse and restructure its operations as per that. Euromoney’s Global Private Banking Survey recognised the entity as the world’s best private bank in 2012. In the same year, Global Investors branded Credit Suisse as ‘The Best European Equity Manager’.

Credit Suisse also bagged several other prestigious awards, which testified to its ability to stay ahead of its competitors, through its operational proactiveness. However, its never-ending tryst with scams became its ultimate bane.

The post IF Insights: The heavy blows & eventual downfall of Credit Suisse appeared first on International Finance.

In a statement, BNP Paribas said, “Credit Suisse will support affected customers as they select alternative Prime Services providers of their choice. Should customers seek to benefit from the referral agreement between BNP Paribas and Credit Suisse, there will be a streamlined process in place to facilitate them obtaining Prime Services from BNP Paribas, under its terms.”

Earlier this year, BNP Paribas appointed Ashley Wilson as the global head of prime services and has also been named as the deputy head of Prime Solutions and financing, along with Kieron Smith.

Wilson previously worked with Deutsche Bank where he worked as the managing director in their Global Prime Finance business.

In his latest role, Wilson will be globally responsible for Prime Brokerage, Inventory Management and Electronic Execution activities. He is based out of London and reports to Raphael Masgnaux, Global Head of Prime Solutions and Financing (PS&F) & G10 Rates, and to Nicolas Marque, Global Head of Equity Derivatives and Head of Global Markets for Continental Europe.

Tha appointment is regarded as a key milestone in the integration of Deutsche Bank’s Global Prime Finance and Electronic Equities business along with BNP Paribas’ commitment to creating a global top five prime services provider.

The post Credit Suisse to hand over its prime services and derivatives clearing customers to BNP Paribas appeared first on International Finance.