Wiped out

A take-over for 3 bn CHF (0.75 CHF): today’s headline on Credit Suisse in the FT reads much better than the underlying reality is. It is now clear that Credit Suisse could not have survived without this UBS take-over. Let this sink in: a modern bank run on a systemically relevant bank created a situation where a 50 bn CHF liquidity facility from the SNB + more than three billion francs other facilities provided last week were not enough to stabilize an institution founded in 1852. And we thought the banking system had been reinforced by regulators after 2008 so these things could no longer happen. Credit Suisse equity holders will have lost most of their investment and the holders of 16 bn CHF Credit Suisse Additional Tier 1 debt are completely wiped out (which will probably occupy the courts over the coming years). There will be a 100 bn CHF liquidity line for UBS from the SNB backed by a Swiss federal default guarantee. Our conclusion: while we believe this was the best of all the worst options, there are no winners here ( except the shorts on CS). Let’s see how Mr Market will vote one the deal : watch the UBS CDS spreads and European bank stocks today.