Luxembourg, 20 March 2023 – The buyout of failing Credit Suisse by competitor UBS is unconvincing and will not soothe markets for the time being. This is what Moventum’s Managing Director and Head of Asset Management Carsten Gerlinger anticipates. “In effect, a façade is being puttied with a lot of political central bank money, but it is the engine room at Credit Suisse that is burning”, says Gerlinger. “Hence, a new Swiss problem bank could emerge from combining a strong bank and a weak one.”
In spite of the current upheaval involving US banks SVB, Signature and First Republic, bank balance sheets in Europe generally appear in good shape. “In essence, the situation is to be analysed entirely differently than back in 2008/2009”, according to Gerlinger. “Banks are in much better shape in 2023 because there have been no significant loan defaults and no issues have been found during the stress tests.” During the 2008/2009 financial crisis, the real estate crisis and the securitisation of loans caused significant losses. “In terms of crisis management, governments and central banks have learned their lessons from the failures made with Lehman”, Gerlinger says.
It appeared as though stability had been achieved: banks made solid profits, and dividend payments were not a concern. “Deutsche Bank, for instance, has declared its intention to pay a bigger dividend for 2022”, Gerlinger highlights. “Management mistakes and deficiencies in risk management have contributed to the recent development at the US banks involved as well as at Credit Suisse.” Nevertheless, there is pressure on banks: “We are now experiencing a crisis of trust that might snowball into a wider crisis as part of a self-fulfilling prophecy”, says Gerlinger. But when in doubt, governments and central banks are working together to keep such crises under control.
The situation will be more challenging for the two Swiss banks. “UBS is purchasing a sizeable bank that would normally require a lot of resources to integrate. Add to that the fact that Credit Suisse is not only a functional bank, but has dragged issues and controversies with it for years.” In the long term, UBS may have gotten a terrific deal. “The purchase price is favourable, and there is substantial funding from the central bank and the government in the form of liquidity support and risk guarantees”, claims Gerlinger. However, Credit Suisse’s issues are older, more pervasive, and the bank has been rocked by numerous scandals: key events such as the demise of hedge fund Archegos Capital, the “spying” scandal, the “tuna bond fraud”, the Greensill controversy, the need to pay a fine for encouraging money laundering, and the scandal involving the sale of tax CDs damaged the bank’s reputation. Its risk management appears to have been inadequate for the distortions that it experienced now, necessitating a last-minute rescue.
“With the takeover by UBS, the immediate concerns have, in fact, been temporarily resolved”, Gerlinger points out. “But, history has demonstrated that such a merger is a Herculean task and is fraught with difficulties.”
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