SVB disaster

I agree with your logic. Just wanted to mention that Buffett does invest in banks occasionally. He clearly understood what he was doing in this situation and did very well with it.

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I was right on that front.

UBS in talks to take over Credit Suisse.

Amazing how you can destroy a major bank in less than ten years.

Archegos, Greensill, various tax evasion scandals etc…

but as you have pointed out, Canadian banks operate in a much simpler sphere than US banks apparently do. So I suspect his quote assumes true for US banks, but a simpler version he can understand is fair game.

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Well, Credit Suisse is now officially history.

The PTB in Switzerland have given the green light for CS to be taken over by UBS.

I saw someone walking in my neighborhood today wearing a Credit Suisse vest. Thought that was an interesting choice today.

I would like to congratulate ubs for winning the world’s longest game of monopoly.

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How the once mighty have fallen.

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Any rumours around First Republic being acquired by one of the big US banks? The $30 billion in deposits from the big US banks didn’t seem to stabilize it.

Been going over the UBS “deal” and from the looks of things the situation at CS is much worse than is being advertised.

UBS buying CS for £1bn mostly via UBS share capital.

The Swiss are currently re-writing their own laws over the weekend so that UBS shareholders do NOT get to vote on this deal and it gets rammed through by Monday.

Normally, I would describe this as your garden variety Swiss hipocrisy, but there is a undercurrent of desperation here that I have never seen before.

They must be terrified that if CS goes down, it will take out the bondholders as well, which could then severely damage their financial industry (which is the main source of their high standard of living really).

You can track this all via CDS spreads. They have practically gone vertical for CS, and show no sign of abating. UBS has also put a clause in the deal about not having to pay for more spread movements (being indemnified by Swiss CB).

This looks increasingly like a Lehman moment for Switzerland.

UBS offers to buy Credit Suisse for up to $1bn - UBS offers to buy Credit Suisse for up to $1bn | Financial Times via @FT

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If the market does not react well to the deal come Monday morning…

We could be looking at the first stage of a 2023 European Banking crisis.

I thought the Swiss were like, good with money and stuff.

I mean the initials should have good enough.

The Swiss are so good with money, they can fix a car with just a Swiss Army Knife and a roll of duct tape.

As expected, huge sell offs in bank stocks.

The deal is now being further scrutinised because FINMA decided to:

  1. Wipe out the AT1 bondholders (coco bonds)

Thats $17 Billion. Marked down to zero

But at the same time, they did not wipe out the shareholders (equity) when they gave them UBS shares (marked down significantly vs previous value but not zero).

In theory, the regulator is allowed to do this, in practice this really stinks.

The reason why is a certain Saudi national fund injected a few billion to shore up CS a few months ago, and their equity stake would have been totally wiped out under normal circumstances.

In any event, expect many, many lawsuits about this over the next few years.

They have done well managing inflation. The Swiss franc was only worth about US $0.23 until 1970 whereas it is now worth more than the US dollar. They have enjoyed that appreciation in the franc while maintaining a strong economy. Credit Suisse is a classic example of poor management within one company over a long period of time; not necessarily a reflection of the entire Swiss economy.

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New York Times is reporting that the Fed repeatedly warned SVB as early as 2021 that it had problems. Supervisors at the San Fran Fed issued six citations in 2021 that were ignored by SVB. Not clear whether the Fed could have done more or were just lax in escalating the issue. This is separate issue from the exemptions SVB enjoyed because it had under $250 billion in assets. And the CEO of SVB was also a director of the San Fran Fed. Bad optics.

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Here is a non-paywalled link if anyone wants to read the article. Relevant snippet:

“It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality.”

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Thats amazing.

Its like amateur hour. They really need to claw back the bonuses.

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I am curious about the SVB’s board of directors. Did they get any information on the Fed’s matters? What was their response?

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Swiss state and central bank support for the bailout in terms of liquidity and aid amounts to a third of GDP.