GENEVA — Swiss regulators on Wednesday defended the rescue of Credit Suisse through a controversial takeover by rival bank UBS as the best solution with least risk of spreading a wider crisis and severely damaging Switzerland’s standing as a financial center.
The merger was “the best option” and one that “minimized risk of contagion and maximized trust," said Urban Angehrn, chief executive of the Swiss Financial Market Supervisory Authority, or FINMA.
Angern said two other options — a takeover by the Swiss government or putting Credit Suisse into insolvency proceedings — had serious drawbacks.
Insolvency would have left the functional parts of Credit Suisse in operation as a Swiss-only bank, but one with a “damaged reputation” through bankruptcy, he told reporters in the Swiss capital of Bern. A temporary takeover by the Swiss government would have exposed taxpayers to the risk of losses.
“One can well imagine, what devastating effect the insolvency of a big wealth management bank of Credit Suisse AG would have had on Swiss private banking,” Angern said. “Many other Swiss banks could have faced a bank run, just as Credit Suisse did itself in the fourth quarter.”
Swiss government officials, including FINMA regulators, hastily orchestrated the $3.25 billion takeover of Credit Suisse by UBS on March 19 after Credit Suisse’s stock plunged and jittery depositors quickly pulled out their money.
Authorities feared that a teetering Credit Suisse could further roil global financial markets following the collapse of two U.S. banks.
UBS Chairman Colm Kelleher expressed confidence about the takeover, saying the deal is expected to close in the next few months, alluding to the complexity of the first-ever merger of two "global systemically important banks.”
“Whilst we did not initiate these discussions, we believe that this transaction is financially attractive for UBS shareholders,” he said at the bank’s annual shareholders meeting Wednesday in the Swiss town of Basel. “I’m convinced that we made the right choice. By combining force with Credit Suisse, we are increasing our scale and boosting our capabilities in wealth and asset management.”
Kelleher said fully integrating the banks is expected to take three to four years. After shucking some parts of Credit Suisse's investment bank portfolio deemed nonessential, UBS expects annual cost savings of over $8 billion by 2027, he said.
The UBS board was proposing a 10% increase to the 2022 dividend, totaling $7.3 billion after the bank recorded a net profit of $7.6 billion last year, while deciding to reallocate shares for the takeover and “temporarily suspend” all share repurchase programs, Kelleher said.
Shareholders did not get to vote on the merger after the Swiss government passed an emergency ordinance to bypass that step.
Kelleher acknowledged to UBS shareholders that the government-organized deal meant they could not be consulted before the takeover was announced.
“I understand that not all stakeholders of UBS and Credit Suisse are pleased with this approach,” he said.
A day earlier, Credit Suisse shareholders aired criticisms of the lender's struggles at what may have been the 167-year-old bank's last annual general meeting.
The globe’s biggest banks, including Credit Suisse and UBS, are required to submit emergency plans for winding them up if they fail, emerging from international negotiations aimed at preventing a repeat of the 2008 global financial crisis triggered by the failure of globally connected U.S. investment bank Lehman Brothers.
Triggering such an emergency plan “would have achieved its immediate aim” of preserving payments and supporting the economy in Switzerland, FINMA’s Angehrn said.
“But the damage to Switzerland as a place to do business, to the reputation of Switzerland, to tax revenue and jobs, would have been enormous,” he said.
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McHugh reported from Frankfurt, Germany.
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This story has been corrected to show that the UBS shareholder meeting is being held in Basel, not Zurich.
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