On March 15, the SNB and FINMA stated that the instability of the American banking market did not mean “a risk of direct contagion for Swiss institutions”. Only a few days later, the announcement of the merger of Credit Suisse and its larger rival UBS raised many questions about the future of the country’s banking sector.
In principle, the Swiss regulatory framework allows systemically important banks to deal with major crises. In recent months, a number of measures have been adopted to restore confidence in Credit Suisse. However, most of these were ultimately unsuccessful as they failed to provide sufficient protection for depositors. In the view of the Swiss government, the most effective solution was the takeover by UBS, creating a financial giant with over CHF 5 trillion in assets under management.
To allow for an increase in equity capital with regard to the merger, FINMA ordered the full write-down of all Credit Suisse’s additional tier one (AT1) bonds worth some CHF 16 billion. The move has caused considerable frustration among the bank’s AT1 bondholders as their investments have virtually been lost, whereas shareholders will receive payouts as part of the takeover. Usually, equity investments are subordinate to AT1 bonds.
Moreover, the Swiss government and the SNB will support the takeover. Key measures include the provision of additional liquidity through a loan covered by a federal guarantee, as well as guarantees for potential asset losses incurred by UBS. Other than financial support, FINMA will closely monitor the transaction, thereby collaborating with other national and international authorities.
The merger of the two banks will take effect at the end of 2023. Overall, it is expected to lead to a loss of diversity and a reduction of services in the Swiss banking sector. What is more, the transaction, which was announced in record time, has left a number of legal and political questions unanswered.
Last Friday, Switzerland’s federal prosecutor has opened an investigation into the state-backed takeover. His office is looking into potential breaches of Swiss criminal law by government officials, regulators and executives at the two banks. A focus of the probe relates to sensitive information from the negotiations that was leaked to the press, which could constitute a breach of state secrecy or industrial espionage laws.
Furthermore, opinion polls show that more than three-quarters of Swiss citizens oppose the merger. A majority support legislation to split up the bank or even measures to claw back bonuses from senior staff, who they consider should be held responsible for their actions.
THE GOVERNANCE LAW FIRM
