UBS, Credit Suisse and Swiss Policymakers Trinity – About Deal Making Winners and Deal Taking Losers

  |   Market View, Geopolitics, Macro

Article by Beat Wittmann, Chief Investment Strategist at Key Family Partners SA

Veni Vidi Vici – UBS’ Clear-Eyed Take-Over and Swift Integration of Credit Suisse

The Latin phrase Veni Vidi Vici (I came, I saw, I conquered) can be attributed to the classic warfare e.g. Roman emperor Julius Cesar or the modern Blitzkrieg – in both senses the UBS takeover of Credit Suisse has written banking history for two reasons:

Credit Suisse’s entirely self-inflicted and predictable demise happened after decades of systemic shareholder value destruction on an epic scale and unlimited self-enrichment for its leaderships ending as an overripe fruit to be picked.

UBS having been fully aware of Credit Suisse’s desolate and ultimately hopeless situation – and unlike the decision makers in Zurich at Credit Suisse and the policymakers in Switzerland’s political capital Bern – were well prepared, realistic, resourceful and determined to execute a well thought through acquisition plan.

UBS’ Announcement of Credit Suisse Integration and Cost Cutting – No Surprises and Spot on

UBS’ announcement about the full integration of Credit Suisse and drastic cost cutting is no surprise and follows the best practice industry logic and script book of its successful conquest.

UBS’ leadership prepared for this once in a lifetime rock bottom attractively valued deal throughout 2022, came in March 2023 to the negotiation table meeting with the Swiss policymaking trinity (EFD, SNB, FINMA) and the Credit Suisse leadership. Well beforehand UBS made sure to be in a position to be ‘asked for help’, then dictate the terms, close the deal and be able to present itself as a savior.

UBS’ leadership did a most outstanding shareholder value creation job for their shareholders evidenced by its rising share price.

It is the Share Price – Stupid!

The impartial and very best indicators for the financial health and business situation and prospects of any global systemically relevant bank are the share and the credit spread prices. Having watched those risk asset prices the demise of Credit Suisse was entirely predictable as its share price declined consistently over many years and went in the latter half of 2022 and early 2023 into a tailspin.

It proved fatal that the EFD, the SNB and FINMA remained isolated in their respective ‘silo-think-and-act-modus-operandi’ narrowly focused onto their respective mandates, fixated on standard financial ratios and never understood nor paid any attention to the disastrous price developments in the capital markets indicating loud and clearly to everyone the unfolding collapse.

The Swiss policymakers do now whatever-it-takes to keep the Credit Suisse debacle away from their responsibility and the upcoming Swiss federal elections on 22nd October 2023. Unfortunately there is so far no political willingness to learn any relevant lessons in order to improve and strengthen the obviously insufficient institutional framework.

The UBS success is told by its rising share price and its respective outlook is firmly positive. The UBS share price development will remain the best and impartial indicator for the UBS leadership to execute on the Credit Suisse integration. There is an outsized opportunity to make the new and enlarged UBS’ positioning and assets work for the shareholders, stakeholders and Switzerland as a financial center.

The Winning Deal Maker UBS and the Losing Deal Takers Swiss Policymakers and Credit Suisse

Swiss policymakers failed to adequately supervise Credit Suisse throughout the past decade leading to its demise. They treated a global systemically relevant bank as a private enterprise, which is an absurdity, and didn’t enforce existing laws and regulations.

When Credit Suisse was finished with its final bank-run leading to the 18/19 March 2023 rescue weekend UBS held all cards in their hands and could de facto dictate the terms and conditions.

The Swiss policymakers had cornered themselves into a non-negotiation situation with UBS and became ‘deal-takers’. This because they waited for too long and not being open to any alternative routes be it a non-Swiss acquirer and categorically ruling out a temporary nationalization.