Swiss Government Brokers' "Shotgun Wedding" for Credit Suisse & UBS

The Swiss government is faced with a difficult decision. Two financial giants, Credit Suisse (CS) and UBS, operate in the same country, Switzerland. The recent turmoil in global financial markets was triggered by two central US banks' collapse last week (Silicon Valley bank & Silvergate)

The Swiss government intervened after considerable consideration to stop additional contagion and instability by forcing it to broker a shotgun wedding between Credit Suisse and UBS.

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However, this won't be a Dinsey fairy-tale-like love story. This shotgun wedding is actually also a forced arranged wedding by the Swiss government, as Rabobank has coined.

This "shotgun wedding," or "merger," must be made more accessible by amending the legislation and surpassing the need for USB shareholders to vote. The Swiss National Bank has promised to help in the buyout by lending up to 100 billion Swiss francs ($108 billion).

The total assets of Credit Suisse and UBS are now $575 billion plus $1.1 trillion, which is three times the size of the Swiss economy. This makes me wonder whether this greater asset base is more stable than Credit Suisse alone because the firm with $500 billion in assets and liquidity from the central bank couldn't handle a financial crisis.

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UBS acquires Credit Suisse at a discount in an all-share deal

This wedding involves UBS buying Credit Suisse at a discount in an all-share arrangement. The acquisition is for a total of CHF 3 billion, a big drop from CS's prior market value of CHF 7.4 billion.

The total assets of Credit Suisse and UBS are now $575 billion plus $1.1 trillion, which is three times the size of the Swiss economy. This raises the issue of whether this greater asset base is more stable than CS alone because an organization with $500 billion in assets plus liquidity from the central bank could not survive a financial crisis.

Concerns over systemic Risk & New Rules

There are also political and economic repercussions of this action.

The Swiss government may now wish to have a bigger say in strategic choices

because of the shotgun wedding, and it is unclear what the two corporations implicated or what the Swiss government will do next. More rules might be made to ensure that any risks created by the new joint company are managed and lessened correctly.

This arrangement may make regulators feel both good and bad. On the one hand, they could like it as a method to reestablish trust and stability in the Swiss financial system and economy during a worldwide crisis.

They could also view it as a chance to improve monitoring and control over one big company instead of two distinct ones.

On the other hand, they may be worried about creating a "too big to fail" situation by merging two existing huge banks into one enormous bank that might pose systemic concerns if it fails or has problems in the future.

They may also have to deal with political pressure or criticism from other groups, such as politicians, the media, or the public, over their part or duty in making this agreement happen.

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