Swiss financial authorities are grappling with how to handle Credit Suisse (CS), which has overcome a crisis through an emergency capital injection. Options on the table include a high-intensity restructuring plan akin to corporate dismantling and a merger and acquisition (M&A) plan involving competitors. However, strong opposition from potential merger parties, concerns over merger synergies due to overlapping businesses, and antitrust issues have raised significant skepticism, leaving the outcome uncertain.
On the 16th (local time), Bloomberg reported, citing sources, that both CS and its competitor UBS opposed the authorities' scenario of forcibly integrating the crisis-hit CS with UBS. UBS cited distrust in CS’s investment banking (IB)-focused business structure, which has suffered massive losses, as a reason for opposing the merger. Foreign media pointed out that "CS’s problem lies not in a sudden liquidity crisis but in an unprofitable business model."
Despite this opposition, the market is placing the greatest weight on the merger plan. This is based on the judgment that CS will lose its viability amid ongoing net asset outflows and customer defections. JP Morgan predicted that the most likely outcome is UBS acquiring CS. It was reported that among various options raised during recent meetings between financial authorities and CS management, integration with a competitor was the most seriously considered.
The scenario involves the authorities purchasing CS shares through a capital increase to become the largest shareholder, then pursuing a third-party sale. In this context, there was also discussion of UBS selling part of its stake in CS’s retail banking division and using some of the proceeds to cover restructuring costs.
Even if the merger is completed, challenges remain. Foreign media such as Bloomberg pointed out that a merger between two global top-five financial groups would inevitably face antitrust controversies. Considering that the merger parties oppose the deal, and that forced integration by authorities would lead to conflicts among employees over workforce reductions in overlapping business areas, the integration process is expected to be difficult. There is also speculation that additional capital adequacy regulations, such as raising the capital adequacy ratio, may follow to ensure the merged entity’s smooth market landing.
Bloomberg emphasized that handling CS is not simply a matter of a merger between competitors but is directly linked to restructuring the Swiss financial industry and restoring lost external credibility, thus requiring careful management.
Bloomberg, citing sources, reported that considering various obstacles, a merger between the two companies would be regarded as a last resort. Authorities are currently considering various options, and it remains to be seen what additional measures will be taken following the announcement of a 50 billion Swiss franc (approximately 70.74 trillion KRW) liquidity support.
Some voices argue that urgently dispersing debt risk through corporate spin-offs is necessary. Boutique investment bank Keefe, Bruyette & Woods (KBW), headquartered in New York, acknowledged that the authorities’ emergency liquidity measures clearly buy time for CS’s survival but warned that delays in follow-up actions could have fatal consequences for the bank, proposing swift corporate spin-offs as a solution.
US financial investment information firm Morningstar also viewed the $4 billion raised from external investors at the end of last year as merely a stopgap measure given CS’s current financial situation, suggesting that risk management through corporate spin-offs would be a fundamental alternative. Morningstar diagnosed that corporate spin-offs are inevitable due to CS’s excessively high funding costs caused by its lowered credit rating.
CS plans to focus immediately on a turnaround (return to profitability) based on the 70 trillion KRW injected with authorities’ support. CS posted a net loss of 7.29 billion Swiss francs (approximately 9.98 trillion KRW) for the entire last year due to customer defections and investment losses. This loss amount is the largest since the global financial crisis in 2008. CS also forecasted that it is likely to incur losses in its IB and asset management divisions in the first quarter of this year and does not expect to escape a deficit trend in its annual performance.
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