Swiss President: It’s Impossible To Regain Confidence In Credit Suisse

Sahana Kiran
Credit Suisse
Source – The Times

The banking sector was slowly recovering after crumbling over the last couple of weeks. As the global banking crisis made more headlines, governments were stepping in to assure structural financial stability. Similarly, Swiss regulators rushed in to save Credit Suisse from further loss. While UBS Group carried out a historic deal with Credit Suisse, the Swiss President rushed in to say that this arrangement is the only way forward.

Earlier today, Alain Berset, the Swiss President said that “it was no longer possible to restore the necessary confidence” in the bank.

Once the government came to terms with this fact, they realized that establishing a “swift and stabilizing solution” is pertinent. The Swiss President Berset believes that the UBS Group deal is an apt solution that will keep the bank alive. He further said that the accord was “one of great breadth for the stability of international finance.”

He further noted that several including the Federal Council, Swiss National Bank, and Swiss Financial Market Supervisory Authority [FINMA] had several meetings before the deal came through. Elaborating on this buyout, the Swiss central bank said,

“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation.”

Here’s what you should know about the Credit Suisse-UBS deal

In an all-share transaction that involves substantial government guarantees and liquidity provisions, the Swiss bank is paying 3 billion Swiss francs [$3.3 billion] for Credit Suisse. The share price represented a 99% drop from Credit Suisse’s 2007 peak. At press time, the stock price of Credit Suisse had plunged by 8.01%.

Credit Suisse bonds worth about 16 billion francs or $17.3 billion will be eliminated as part of the agreement. A unique kind of bond is used by European bank authorities to give banking institutions, a capital buffer during hard times. Yet, as part of this government-brokered transaction, if a particular amount of a bank’s capital is reached, it will cause these bonds to be canceled.