can any1 explain if this is good news or bad news for glbl n Indian mrkts n bnks
I will take it as a warning if I see bankers making merger transactions on Sundays who would ordinarily be reluctant to work on the weekend.
Currently it’s a big big mess boss…
This isn’t about stock market specific move anymore. There is systemic risk at play here.
Things are turning really ugly and these moves are done as a panic response to avert further spillover but how long will the effect last? Super tough to say.
We wouldn’t know much for now but there will be second order effects.
Short summary of what just happened
- Panic in banks across US and Europe meant the vulnerable banks faced the risk of a bank run which basically means too many people withdrawing their funds at same time and what bank is more vulnerable than the infamous credit suisse which was in news for all bad reasons from last many years.
This article captures how it all lead to this point
In order to avert any mishap, Swiss government, without any shareholder approval intervened and supported UBS indirectly to buy CS
- UBS buys CS paying 3.3 billion dollars ~ 60% discount to CMP of Friday close
Swiss central bank gives 100 billion dollar credit line + govt covering 10 billion dollars losses arising out of this deal in case things are too bad at credit Suisse
17 billion dollars AT1 bonds wiped out.
when things turn really ugly, everyone tries to resort to socialism
It’s just an acquisition, doesn’t mean it solves the problem of Credit Suisse or the people who have defaulted loan. A prime example is YES BANK.
SBI saved YES Bank from sinking a year back and still Yes BANK hasn’t grown to its full potential. People take brand names very seriously, at least me.
When someone breaks your trust, the brand name gets spoiled, and to overcome that you need a lot of effort and time or maybe a generation change.
even in this deal AT1 Bond holders got wiped out.
One another unfortunate fallout of the Credit Suisse collapse is the write-down of a massive $17 billion additional tier 1 (AT1) bonds. Investors will not get anything out of this written down portfolio. In India, too, a similar episode had played out when Yes Bank wrote off around Rs 8,400 crores worth AT1 bonds during its 2020 bailout.