According to documents outlining the merger, Credit Suisse and UBS could receive more than 260 billion Swiss francs ($280 billion) in state and central bank assistance, or one-third of the nation’s gross domestic product, as part of their merger to protect Switzerland from the current financial crisis.
In a shotgun merger intended to prevent further market-shaking turbulence in the global banking industry, Swiss authorities announced on Sunday that UBS had agreed to acquire rival Swiss bank Credit Suisse.
While the government said UBS would also bear the first $5.4 billion in losses from unwinding derivatives and other hazardous assets, UBS stated that it would pay $3.2 billion for the 167-year-old flagship.
But, the proposal has substantial public backing, including three tranches of loans and liquidity as well as a commitment from the Swiss government to absorb up to 9 billion francs in potential acquisition losses.
The overall support amount of 259 billion Swiss francs is equal to one-third of Switzerland’s total economic production, which was 771 billion francs in 2022.
“The government’s going to have to explain to voters why they are risking taxpayer money to bail out a bank that was primarily serving the ultra-wealthy, doing some pretty extraordinary things with its investment bank, and paying people crazy amounts of money compared to what the man on the street gets paid,” one former global bank CEO, who did not want to be identified, told reporters.
Credit Suisse promised personnel in a memo distributed to them on Sunday following the announcement of the transaction that their bonuses would be paid in full.
There are three ways that the public can help the bank.
The emergency liquidity support program of the Swiss National Bank (SNB) had already been used by Credit Suisse.
Credit Suisse announced last Wednesday that it would withdraw 50 billion Swiss francs from the financing program, which offers funding backed by collateral like mortgages and securities. The bank is able to withdraw more of this funding as long as it has more collateral.
Data from the central bank on Monday suggested that Credit Suisse was probably already using the fund.
In addition, the Swiss National Bank extended an emergency liquidity credit to the combined bank in the amount of up to 100 billion Swiss francs. If there is a default, that debt is safeguarded.
The third round of assistance enables Credit Suisse to access an additional 100 billion Swiss francs in funding through a publicly guaranteed liquidity backstop.
On whether Credit Suisse or UBS had utilized the available funds, the SNB declined to comment.
The recent failure of US lenders Silicon Valley Bank and Signature Bank has caused market instability around the world, with Credit Suisse being the most well-known company to fall victim to it.
The 30 banks considered to be globally systemically important by authorities included both UBS and Credit Suisse. The entire banking system would be affected if Credit Suisse failed, the Swiss government said late on Sunday.
Swiss Finance Minister Karin Keller-Sutter stated at a news conference that the bankruptcy of Credit Suisse would have caused “massive collateral damage” both on the Swiss financial system and worldwide, including the possibility of contagion for UBS and other banks.
