Opinions

Bank rescue as insurance


The state-sponsored rescue takeover of Credit Suisse had just one aim: to prevent an imminent collapse of the Swiss banking system and economy that would have spread contagion through global markets and may have sparked a repeat of the 2007-08 Global Financial Crisis….

It has just become clear how flighty are the wealth management assets on which banks like UBS make their money. For UBS and for all banks, the cost of deposit liabilities is going up. The cost of AT1s is likely to skyrocket. These have a new position in the capital stack, junior even to common equity. The secondary market will be offer-only until investors recalculate the required compensation.

Risk aversion and tightening financial conditions make it likely that non-performing loans will rise from here. UBS may be given a long time to meet them, but its global systemically important bank capital requirements are going up; banks’ cost of equity is going up; net interest margins are coming down; and returns will likely fall.

UBS has taken on substantial deal execution risk that will take up management attention. While UBS will run down the markets businesses that the previous Credit Suisse management was going to keep, it sounds like it will keep the investment bank Credit Suisse had planned to spin off.

From ‘Credit Suisse and UBS: The New Risks’, Euromoney



READ SOURCE

This website uses cookies. By continuing to use this site, you accept our use of cookies.