On June 12, 2023, the shares of the major Swiss bank Credit Suisse were traded on the
stock exchange for the last time. Credit Suisse was taken over by UBS within a few days.
This has triggered a number of questions, particularly in the financial world:
What was the real reason for the takeover of Credit Suisse by UBS?
And why is the parliamentary committee keeping the investigation into the Credit Suisse collapse secret for the next 50 years?
Why wasn't Credit Suisse simply liquidated, i.e. dissolved, as required by law and the emergency
plans? These and other questions will be addressed in this program.
Although the Credit Suisse rescue took place several
months ago, it is an interesting
example of how the financial world is structured.
Although the major banks in Switzerland had spent years drawing up a detailed emergency resolution
plan for the event of a failing investment bank, this was not applied at Credit Suisse.
This emergency plan would have preserved Credit Suisse's Swiss business share and
sent the rest of the group, especially the American business share, into bankruptcy.
It was presented to the audience that there would have been no other solution within a few
days than for Credit Suisse to be taken over by UBS in an overnight operation.
Emergency law - i.e. martial law - was applied.
According to Art. 185 para. 3 of the Federal Constitution, the Federal Council may: [...
] issue ordinances and orders to counter serious disturbances of public order or internal or external security that have occurred or are imminent.
Such regulations must be limited in time.
It is doubtful that the Credit Suisse bankruptcy would have caused a serious disruption
to public order or threatened Switzerland's internal or external security.
All the more so as the emergency plan would have guaranteed the survival of Credit Suisse.
The Federal Council thus abused the constitution in order to force through this deal with the help of emergency law.
The Confederation and the Swiss National Bank (SNB) secured the deal with up to CHF 250 billion. For comparison:
In 2008 and 2009, the USA spent USD 204 billion on
all bail-outs, i.e. debt takeovers by the state.
This means that more money was provided for the rescue of Credit Suisse alone than the entire bank rescue in the USA cost over two whole years.
UBS has now acquired the shares of Credit Suisse at a price of CHF 3 billion.
Credit Suisse had equity of CHF 45 billion as at 31.12.2022.
That was a bargain for UBS. It's exactly the same as always:
UBS made a quarterly profit of over CHF 29 billion as at
30.06.2023, but the Swiss taxpayer bears the remaining risk, only
hedging the loss side but not participating in the profit.
The whole story is somehow inconsistent and it seems as if important information has been withheld from the
Swiss population, who have to foot the bill for this transaction. This explains why the investigation was kept secret for 50 years.
Derivatives when Credit Suisse's emergency plan
was applied Was it the derivatives why a 50-year confidentiality was agreed?
A financial derivative is an invented construct, a financial product whose value and performance
is derived from other financial products (underlyings), i.e. a financial bet.
For example, you can speculate on both rising and falling
prices of an underlying asset, e.g. a share.
The total derivatives held by Credit Suisse as at 31.12.2022 amounted to an incredible CHF 14.360 billion.
This figure is so fabulously gigantic that you have to put it into context to understand it.
Switzerland's gross national product amounts to around CHF 800 billion.
This means that Credit Suisse's derivatives position is 18 times larger than Switzerland's gross national product.
The Confederation's official debt amounts to around CHF 110 billion.
This means that Credit Suisse's derivatives position is 130 times as large as the Confederation's debt.
Warren Buffet, one of the world's most successful investors and Chairman and CEO
of Berkshire Hathaway, said the following about derivatives
in 2002: We believe, however, that derivatives are financial weapons of mass destruction,
harboring dangers that are latent but potentially deadly.
If CS had been wound up in accordance with the emergency plan, the part of the Credit
Suisse Group that held these positions would have been declared bankrupt.
The net position of the derivatives is only valid as long as all counterparties can fulfill
their obligations under the derivative contract. Put simply, this means:
Each bank bets on some market event and hedges this risk by making another
bet on a third bank, which in turn makes the same hedge on another bank.
In this way, all systemically important banks are caught up in a web of derivatives.
If one falls, they all fall. If CS had gone bankrupt, all the banks would have fallen.
If CS had no longer been able to fulfill its positions in the derivatives book as a counterparty, all the
positions that the other banks had hedged with CS as a counterparty would have become worthless.
This would have meant that the entire financial
system would have blown up, i.e. been destroyed.
However, Credit Suisse's equity of around CHF 45 billion is around 360 times smaller than the derivatives position.
As a result, Credit Suisse would not have been able to meet its obligations in the event of bankruptcy, which would have
created a hole in the world's derivatives cycle the size of the CHF 14,360 billion mentioned above.
This would have led to a domino effect. All the banks in the derivatives network would have gone under.
UBS did not bear any financial risk as a result of
the takeover; this will be borne by the Swiss taxpayer.
But what about the more than CHF 14,000 billion in derivatives positions on the CS balance sheet? They are now at UBS.
Since UBS also has a gigantic derivatives book, the problem is even bigger.
The first joint annual accounts will show just how big.
The Federal Council applied emergency law without a legal basis in order to realize this transaction.
This saved the entire international financial system - for the time being.
Now the statement made by foreign ministers to Federal Councillor Keller-Sutter suddenly makes sense: You have saved the world.
The UBS management, the Swiss Financial Market Supervisory Authority
FINMA, the Swiss National Bank SNB and the Swiss Federal Council have
not informed the Swiss taxpayer about the actual and larger context.
The Swiss population was told that a rescue of CS was unavoidable in order to save the Swiss banking landscape. But it was about the temporary rescue of the global financial system at the expense of the Swiss taxpayer.