Switzerland’s banking regulator said it considered putting Credit Suisse Group AG into bankruptcy before deciding on the takeover by UBS Group AG, as the risk of contagion was too great.
Finma scoped out various rescue options before the day the bank was sold in the government-backed deal. The lender had faced an “unprecedented” bank run, Finma President Marlene Amstad said at a press conference on Wednesday in the Swiss capital Bern.
Amstad’s comments are the first public statements on the deal since she and Finma CEO Urban Angehrn said in the Swiss press that the deal was the only viable option, while also defending the regulator’s role in the hastily-assembled transaction. They back up claims by Swiss Finance Minister Karin Keller-Sutter who said on March 25 that Credit Suisse wouldn’t have survived another day of trading amid a crisis of investor confidence.
Amstad rejected the suggestion that Finma didn’t intervene early or aggressively enough to tackle Credit Suisse’s problems, pointing to the six public enforcement proceedings against the bank in recent years.
Finma said it demanded higher liquidity buffers from Credit Suisse as early as 2020.
Credit Suisse held its annual meeting on Tuesday, its last as a public company, where it faced angry shareholders. UBS got underway earlier on Wednesday.
See also: MAS fines Credit Suisse $3.9 mil for misconduct by its relationship managers
Holders of Additional Tier 1 bonds issued by Credit Suisse were left incensed as they saw $17 billion worth of those bonds written down to zero by Finma. The risk of this happening was spelt out in the bond’s fine print, and allowed Credit Suisse shareholders to recoup some value while wiping out the bonds.
Still, the move upended financial tradition as equity holders are usually the first in line to absorb a struggling bank’s losses. Several prominent law firms have been drumming up business for potential court action. Angehrn reiterated on Wednesday that Finma had the legal right to write down the AT1s and will deal with any lawsuits when they are filed.
Client Outflows
See also: Credit Suisse's Singapore private bankers moving to UBS offices
Asked about client outflows from Credit Suisse late last year, Angehrn said that the outflows were “dramatic in October, still dramatic but smaller in November, and even smaller in December.”
They flattened and even improved in January and February allowing Credit Suisse to build up liquidity buffers again, he said. Outflows overall in the last three months of the year were about 138 billion Swiss francs ($202.34 billion). Between March 15 and the weekend and the weekend of the deal was similar to October’s outflows, Angehrn said.
Amstad said she’d welcome Finma getting the power to fine banks to discourage bad behavior but stressed she didn’t want to go too far. “Finma is not a criminal authority or wants to be one.”
Finma’s Angehrn laid out the options it considered for Credit Suisse: the resolution of the bank, a temporary nationalization or merger with UBS. It had initially considered a bankruptcy for Credit Suisse but de-emphasized that because of the “drastic impact” it would have had, he said.
Nationalization was “rejected on risk and legal grounds and out of a preference for a private sector solution,” he said.
A takeover was the best option, he said, because it would deliver “considerable confidence” to the marketplace.
In a separate development, European Union regulators said they had approved a request by UBS and Credit Suisse to waive a so-called “standstill obligation” that prevents deals affecting competition in the 27-nation bloc from going ahead before they have been reviewed. UBS and Credit Suisse will still have to notify the merger according to the EU Merger Regulation.
