Swiss authorities rushed through a deal late Sunday in an attempt to prevent a whole-scale stock market crash before trading started in Asia, along with futures trading in the U.S.
The deal involved a forced fire sale to its rival bank, the largest bank in Switzerland, Swiss National Bank (SNB), which included both bailout money from Switzerland’s Central Bank for SNB, along with a bail-in of AT1 bonds with Credit Suisse used to fund seniors’ pensions, which will be completely wiped out.
We finally have a deal, and what was at first a CHF1 BN acquisition priceof Credit Suisse by UBS, which then rose to CHF 2 BN, has now cranked up one final time to CHF 3BN (US$3.25 billion), or 0.76 per share, specifically shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse. As part of the deal, the Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over, i.e., this is a taxpayer-backed bailout.
More importantly, however, the bank’s entire AT1 tranche – some CHF16BN of Additioanal Tier 1 (AT1) bonds, a $275BN market – will be bailed in and written down to zero, to wit: “FINMA has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.”
This wipe out, pardon, bail-in is the biggest loss yet for Europe’s $275 billion AT1 market, far eclipsing the approximately €1.35 billion loss suffered by junior bondholders of Spanish lender Banco Popular SA back in 2017, when it was absorbed by Banco Santander SA to avoid a collapse.
AT1 bonds were introduced in Europe after the global financial crisis to serve as shock absorbers when banks start to fail. They are designed to impose permanent losses on bondholders or be converted into equity if a bank’s capital ratios fall below a predetermined level, effectively propping up its balance sheet and allowing it to stay in business.
As Bloomberg notes, investors had been concerned that a so-called bail-in would result in the AT1s being written down, while senior debt issued by the holding company, Credit Suisse would be converted into equity for the bank.
In retrospect, they were right to be worried… meanwhile equity holders get CHF3 billion; we are confident Swiss pensions will be delighted they are getting a doughnut while the Saudis get a not immaterial recovery. (Full article.)
The bail-in wipeout of senior pensions is sure to fuel protests already happening around Europe over pension reforms, especially in France where protests began Thursday night last week when President Emmanuel Macron invoked what is basically an “executive order” before the French Parliament was about to vote on, and DISAPPROVE, pension reforms.
The French have been rioting in the streets since then, continuing through Sunday night, as at the time I am writing this there are still livestream reports being broadcast showing much of France burning.
I have compiled a brief video report on the protests in France, which are now banned, but it doesn’t appear that the French people care too much about the ban. This is on our Bitchute channel.
Could we see similar types of bail-ins and pension funds disappear in the U.S.?
Here is what the CEO of the largest investment firm in the U.S. said a few days ago:
BlackRock CEO Larry Fink sees retirement as ‘silent crisis’ facing global economy
BlackRock Chief Executive Larry Fink raised the specter of the “silent crisis” of retirement facing the global economy as increased longevity makes issues such as higher housing and healthcare costs for retirees more daunting.
In his closely watched annual letter, Fink, the co-founder of the $8.6 trillion money manager, said “investing for a financial goal like retirement is an act of hope and optimism, demonstrating a long-term perspective, trust in financial institutions, and belief in the integrity of the market.”
Fink pointed to lower market-return expectations, higher housing and healthcare costs for retirees, and the shifting of retirement risks to individuals as factors making it difficult to support increased longevity.
Fink said some of the issues driving the retirement crisis include populations in Europe, North America, China, and Japan that are aging due to increased lifespans and falling birthrates. In the U.S., for example, 10,000 people turn 65 every day.
“This has profound implications for each of these markets over time. It will result in a smaller working population and cause income to grow more slowly or even decline,” Fink said. (Full article. Subscription required.)
Read between the lines whatever you want and come to your own conclusions regarding potential future bail-ins in the U.S.
Also, please take note that while depositors were bailed out in the Silicon Valley Bank collapse last week, which included mostly wealthy people who had millions on deposit there, such as California Governor Gavin Newsom, and billionaire Mark Cuban, shareholders were NOT bailed out, and risk losing everything, since the bank has now filed for bankruptcy and no buyers have stepped forward to rescue the bank yet.
The top three shareholders at Silicon Valley Bank were reportedly: Vanguard Group (11.3%), BlackRock (8.1%), and StateStreet (5.2%), which are also among the top firms in the U.S. holding pension funds.
These firms, and many others in the U.S. and around the world, also had vast sums invested in now failed Credit Suisse bank.
It is being widely reported that Warren Buffet is now giving advice to the Biden Administration. In addition to the White House, it has been reported that more than 20 private jets landed in Omaha yesterday, including regional bank CEOs, to seek Buffet’s advice.
What do you call it when an 80-year-old seeks the advice of a 92-year-old?
Answer: the worst financial crisis since Lehman.TM
Realizing that Berkshire Hathaway had a near-record $128 billion in cash at the start of the year, more than most countries…
… Joe Biden, who on Monday lied to the American people that the “our banking system is safe“…
… appears to have changed his mind and is urgently hoping to recreate the zeitgeist surrounding the infamous Oct 16 “Buy American” NYT op-ed by Warren Buffett.
… which ended up being memorable but only after the biggest bailout of US banks and capital markets in history and the start of the never-ending QR/ZIRP->bust->QE/ZIRP cycle.
According to Bloomberg, Berkshire’s Warren Buffett has been in touch with senior officials in President Joe Biden’s administration in recent days as the regional banking crisis goes from bad to worse to Savings And Loan 2.0 (if only America had any savings left).
The buzz of private jet activity centering on Omaha was first reported by Fuzzy Panda who noted that “a large number (>20) of Private Jets landed in Omaha yesterday afternoon” with jets flying from HQs of Regional Banks, Ski Resorts & DC, and prompting the question “Did Buffett just fly all the regional bank CEOs into Omaha & offer a deal to SAVE the banks?”
Read the full article at ZeroHedge News.
Get ready for another wild week as the banking crisis goes from bad to worse.
The corporate media and most of the alternative media are being distracted by political news, such as Donald Trump’s alleged arrest this week, which compared to the banking crisis and the escalation of WW III centered in Ukraine, is quite insignificant.
**By Brian Shilhavy