Switzerland does not want to become a Ground Zero for the "Financial Crisis of 2023". Switzerland, which has a reputation as a stable financial center to cherish. Admittedly tainted by Credit Suisse's scandals and bad business in recent years, but letting that bank fall could not be afforded.
The Swiss government was so desperate to avoid a bank collapse that it rewrote the legislation on a Sunday (without having to ask parliament) to coup through the UBS-Credit Suisse deal in no time, without shareholders having a say.
Discount to single bidder
Take the opportunity to bargain, everything should be removed before the evening is over! The state set it up so that UBS would go home with Credit Suisse under his arm. The purchase price was two billion dollars. So cheap!
And the door was locked behind UBS once they stepped in to bargain at the fire sale. The only way to get out was by agreeing to buy Credit Suisse. The definition of a "shotgun wedding"! Everything went so fast that they can hardly have even had time to open the accounting books at Credit Suisse before the purchase went through.
UBS buys the bank pig in the sack. Hope they don't discover anything really nasty there when they open it up. Perhaps there are liabilities that far exceed the value of assets? Maybe two billion dollars was not a bargain, but an overpriced one? On Monday, surely Credit Suisse would have been worth zero Swiss francs.
What happens to UBS when the stock market opens on Monday? Will their stock rise or plummet? Will those who lend money to UBS want more in interest because they believe it is now a risky bank that has eaten shit, or on the contrary a giant that has swallowed up competition so that it can become even more profitable as a master of the clog?
Credit to La Suisse anyway, for saving Credit Suisse this way! Neat of the Swiss state to bail out a bank without it looking like it's the state that's rescuing the bank. After all, the soft power of the state, the finance minister's persuasiveness prompted UBS to "voluntarily" take over the problem child. But bank rescue is.
All these bank rescues feel necessary in the moment. The alternative is chaos and perhaps financial crisis. But for every bank that is rescued in one way or another, the problems are postponed and the risks only become even greater.
Even if shareholders lose out in the rescues, it means that customers do not have to choose a bank so carefully and the bank managements do not have to invest in being a safe and boring bank that must prioritize stability over profitability.
The risk-taking of the banks increases when they know that the state will always come to the rescue if you were to drive in the ditch. Then you can take the opportunity to bus when there are good road conditions. Who wants to stick to the speed limits? When it goes fast, you get a bonus!
Created a monster
If you thought Credit Suisse was too big to fall, it's nothing against the monster you've now created. Is the Swiss state really capable of rescuing UBS if they ever get into trouble?
In the US, the cap on state deposit guarantee was basically removed in connection with the Silicon Valley Bank collapse. If the result of every banking crisis is that the state pushes the boundaries of its commitments and also creates even bigger banking giants, then it becomes increasingly expensive to buy oneself free from the chaos of the moment.
We are putting the problems in front of us. As we usually do, we humans. Letting the next generation foot the bill. It's easiest that way.