How The Swiss 'Trinity' Forced UBS To Save Credit Suisse

(MENAFN- Swissinfo) A view of the headquarters of the Swiss banks Credit Suisse, right, and UBS, left, at Paradeplatz in Zurich, Switzerland on March 19, 2023. © Keystone / Michael Buholzer

The emergency call from the Swiss establishment came at 4pm on Thursday.

This content was published on March 21, 2023 March 21, 2023 minutes Stephen Morris, James Fontanella-Khan and Arash Massoudi in London, Financial Times
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Colm Kelleher, a rambunctious Irish banking executive who has been chair of UBS since last April, had been planning to celebrate St Patrick's Day on Friday before watching Ireland play England at rugby on Saturday at a pub in Zurich. He was hoping to see his country win a clean sweep, or“Grand Slam”, in the Six Nations Championship.

But even before he took the call, he knew his chances of enjoying an entertaining weekend were slim. The chaos engulfing crosstown rival Credit Suisse, which had become the basket case of European banking after three scandal-ridden years, was now in overdrive.

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A day earlier, a CHF50 billion ($54 billion) liquidity backstop from the Swiss central bank had failed to arrest a crisis of confidence in the lender, whose shares had plunged after Ammar Al Khudairy, the chair of its largest investor Saudi National Bank, bluntly replied“absolutely not” when asked if it would put in any more money.

Global markets were already anxious after US regulators had seized control of Silicon Valley Bank following the withdrawal of $42 billion of deposits in a single day. The same was happening at Credit Suisse. It was losing more than CHF10 billion of wealthy clients' money daily, adding to CHF111 billion that had disappeared after a social-media rumour in October that it was on the verge of bankruptcy.

+ how the credit suisse takeover unfolded over a weekend of mayhem

“For the biggest investor to say I'm not putting another dime in was a huge vote of non-confidence. I could argue that had he not said anything we might have been in a very different situation,” says a person close to Credit Suisse's top management.

On Wednesday, the so-called“trinity” of the Swiss National Bank, regulator Finma and minister of finance summoned Credit Suisse chair Axel Lehmann, who was in Saudi Arabia for a conference, and chief executive Ulrich Körner for a call.

In the same meeting where they authorised the CHF50 billion backstop, they also delivered another message:“You will merge with UBS and announce Sunday evening before Asia opens. This is not optional,” a person briefed on the conversation recalls.

+ credit suisse collapse: consequences and open questions

Kelleher found out his weekend plans were ruined on Thursday afternoon. The trinity called UBS and ordered the group to find a solution to save its ailing peer from bankruptcy.

“Resolution [a government-controlled wind-down] would have been a disaster for the financial system and introduced the threat of contagion around the world,” says another person involved on the UBS side.“Our interests were also aligned because a failure is not good for the Swiss wealth-management brand. So we said, on the right terms, we would help.”



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The takeover of its local rival could end up being a once-in-a-generation boon for UBS. But in exchange for taking on a bank wracked with litigation issues and billions of toxic assets, UBS was determined to extract the best deal that it could.

Ireland did win the Grand Slam on Saturday but Kelleher was limited to enjoying a single pint of Guinness at the James Joyce pub in Zurich.

The following account is based on interviews with more than a dozen people involved in a frantic weekend of dealmaking that ended in a storied 167-year-old bank being subsumed into its fierce rival, wiping out certain junior bondholders and putting tens of thousands of jobs around the world in peril.

A merger between Zurich's two largest banks has long been debated and rumoured. Tidjane Thiam, the former Credit Suisse chief executive, repeatedly told colleagues when he was in charge between 2015 to 2020 that it was“the only merger in European banking that makes sense”.

Until last week, the Swiss establishment had always been committed to a two-bank model. In 2008, it opted to rescue UBS with taxpayer money after it suffered dramatic losses in the financial crisis, rather than allow it to be acquired. However, public anger at that arrangement still endures today and a repeat was politically unthinkable.

“This is no bailout,” Swiss finance minister Karin Keller-Sutter stressed when the deal was announced on Sunday night.“This is a commercial solution.”

Advisers and code names

When both sides realised a deal was inevitable, they hired advisers. Credit Suisse has long retained Centerview, the investment bank led by Blair Effron who was assisted by Tadhg Flood, but Lehmann and Körner also recruited ex-UBS investment banker Piero Novelli to separately advise the board. Rothschild provided a further fairness opinion to directors.

JPMorgan advised the UBS management team, while Morgan Stanley advised the UBS board. The acquirer gave each bank a tree-based code name: Credit Suisse was Cedar and UBS Ulmus, the Latin word for elm.

+ credit suisse agrees to chf3bn takeover by rival swiss bank ubs

Credit Suisse used different monikers: it referred to itself as Como while UBS was Geneva, after the lakes.

Through the process there was almost no direct contact between the two sides, an arrangement that increasingly infuriated those at Credit Suisse, who were intentionally kept in the dark about the price and terms of the takeover.

Most interaction took place via intermediaries in the Swiss government or regulators over Zoom.

“By Thursday, we were all together in Zurich, and it was clear that the government was going to push one way or the other for a solution by Monday morning, at all costs, to protect Swiss national interest, and banking interest more generally, on a global basis,” says the person close to Credit Suisse.

Keller-Sutter, the finance minister, was a key figure throughout the negotiations, including co-ordinating with foreign officials and regulators in the US and Europe.

She was under extreme pressure from global regulators, who had been demanding faster and more decisive action to stop panic spreading in markets. In particular, the US and the French were“kicking the shit out of the Swiss”, says one of the people advising UBS. Janet Yellen, the US Treasury secretary, had several conversations with Keller-Sutter over the weekend.


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