UBS Acquires Credit Suisse in Response to Financial Crisis. The first full week of the banking crisis was dynamic. The Fed poured a record amount of loans ($303 billion) into the system, of which the FDIC added $143 billion, the US Treasury added $40 billion, the FDIC itself had ~$128 billion mainly in state funds, the total pool of FDIC capabilities was $300-310 billion with marginal payments of ~$260 billion for two banks. But there may be more on the way… Yellen’s capabilities are limited (the “ceiling” of the national debt is tight), the FDIC does not have much money, so they are trying to sell Signature Bank, and First Republic Bank was actually asked to save the largest banks, which will provide $30 billion.
Yellen, who has no extra money, has already stated that she will not save everyone (it was more correct to say “she will not be able”), had to gather the largest bankers (JPM, BofA, Citi, etc.) and push them to save the sinking $200-billion California bank. FRB has a lot of uninsured deposits of wealthy clients (who are fleeing), and the loan portfolio is mainly related to real estate (and in 2022 they increased it by 23.6%). In fact, the same story: “large” deposits without insurance, a loan portfolio with a large duration, but I can’t put a lot of securities in the Fed) t (little). There is another nuance – in addition, the bank has a large wealth management portfolio worth $ 270 billion... In California, the fall will be loud…with Hollywood passions, and then dozens of medium-sized banks. The story will continue, and Yellen‘s options are limited...
For Credit Suisse, the main option = this takeover by UBS is increasingly realistic. Although the banks themselves do not really want this, but there are not many options here – with the current blow to trust. The outflow of client money can be temporarily blocked by liquidity from the NBSH, but only temporarily, large banks are already actively cutting limits on the bank. The fall of CS, which is embedded in many instruments and mechanisms of the global financial system by thin threads, is the new Lehmann. In this sense, they will not let it fall at all (at least they will do everything to prevent it), but even without this, the withdrawal of capital from such structures can lead to the unwinding of complex derivative structures and possible sales/volatility in almost any market segment. UBS will get a pig in a poke that can bury it, because it will require exorbitant guarantees. It could be nationalized, but I’m afraid it can’t be solved in Switzerland without a referendum).
The markets are chaotic, in reality, the movements of any assets may be due simply to the fact that someone is forced to urgently close existing positions. Stocks in the United States, especially tech stocks, have grown, but I think this is not only because of expectations of easing by the Fed (although this is also), but also because of attempts to shove fleeing deposits at least somewhere ($300 billion from the Fed mostly goes to the outflow of deposits… they need to go somewhere other than deposits in large banks). Gold/ silver and bitcoin have gone to the ceiling – also on this story of flight from banks. Gold is clear and without comments. Considering that the deposits of IT/ creative sectors that are on the “you” with the crypt are largely affected, some of them go there, and there may also fall... but without the risk of instant zeroing. The crypt does not need much – $ 1-2 billion of inflow will give ~ $100 billion of market capitalization growth. It is clear that expectations of a reversal of the Fed and other Central banks are the engine of this movement.
There is also enough chaos in the public debt markets: liquidity is low (spreads have parted), volatility has increased sharply – flights by dozens of points in one direction or the other. There are also distortions in the money market. All this is directly related to the banking crisis – investors have moved powerfully from deposits to government debt, including. As a result, for example, the yield of the 4-week Treasury bill collapsed from 4.6% to 4%, while SOFR 4.6% and Fed rate futures also 4.6%. Of course, no one expects a rate cut to 4%… just a wild demand for bills of exchange. The crisis of liquidity and confidence in medium-sized banks is adjacent to the excess of liquidity in large ones (no one went to REPO with the Fed, and the reverse REPO began to grow, but $153 billion was crammed into the discount window)...
Deeds - thoughts
... I think it is necessary to make allowances for the fact that a significant part of the movements in the markets are due to throwing deposits into "something else", part - hopes that the Fed will reverse course. On Wednesday, there will be a very entertaining meeting of the Fed on rates, and forecasts will also have to be published... Powell will have to go through the blade, they have already essentially softened the approaches of pouring liquidity. It will turn around too sharply and lose face (but what about inflation!) and the market will scare (it means everything is very bad!) ... it will continue to put pressure on the gas (the rate forecast is important) – it will also scare, because there is an increase in losses and new victims ahead. Therefore, it may rather be an attempt to portray something in between... so we'll see, although everything can change in a day today.
Credit Suisse Total
UBS buys Credit Suisse for >$2 billion (at the closing of the CS market it cost > $7 billion) and traded $100 billion in liquidity to the Swiss National Bank. Switzerland is ready to rewrite the laws to circumvent the shareholder vote in the deal.
UBS managed to bargain for very good conditions in general, although no one fully knows how many CS skeletons there are in the closet.
At the very least, this may ease the tension a little, but it is not a fact that history will not eventually encounter resistance from shareholders... we‘ll see