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I'm surprised Matt Levine would write a somewhat clickbaity title. If the net equity value of Credit Suisse was very low or perhaps even negative, depending on
by MichaelZuo 4y ago
I'm surprised Matt Levine would write a somewhat clickbaity title.
If the net equity value of Credit Suisse was very low or perhaps even negative, depending on the accounting, then UBS in fact paid quite a high price because of all the liabilities.
- deleted 4y ago[deleted]
- mey 4y agoConsidering Credit Suisse's litigation history, ( https://en.wikipedia.org/wiki/Credit_Suisse#Controversies https://en.wikipedia.org/wiki/Credit_Suisse#Controversies ), I would be surprised if their liabilities are limited to just the balance sheet.
- _nalply 4y agoAnd that's why UBS not only paid not a lot but also got a guarantee from the Swiss National Bank for about, I don't know, perhaps 100 billion Swiss francs.
- eloff 4y agoIt was 9 billion. UBS is on the hook for the first five billion in losses, the Swiss National Bank for the next nine, and UBS anything else above that.
- _nalply 4y agoBut perhaps after some point, since UBS is too big to fail, the Swiss National Bank will again back UBS indefinitely. In other words: UBS 5 billion then Swiss National Bank 9 billion then UBS as long as they can and finally Swiss National Bank the rest.
- pg_1234 4y agoNo ... in the worst case scenario the Swiss protect deposits, possibly nationalize the infrastructure needed to service those deposits, then let the rest of the structure collapse into bankruptcy. You don't bankrupt your national economy to protect foreign speculators. You salvage the part that your citizens depend on (and were meant to be able to trust). Once you're talking 100 billion plus, global investor confidence will recover over time long before you recover from a financial hit like that. Basically the approach that Sweden took in 2008.
- OJFord 4y agoIs that a common structure? Seems a bit odd to me to want a backer for the middle bit, but I suppose be so confident that it won't be worse than that that you're happy with the tail?
- ot 4y agoYes, every insurance works like that: deductible, then coverage, then you're on the hook again.
- OJFord 4y agoTrue! Good point. Assuming it's the same in this kind of deal as insurance I'm familiar with then, it's just.. yeah, ideally you wouldn't, but you can't get (well, I suppose there's a price..?) someone to take all your risk, so you just beat it down to some acceptable level that you can't imagine needing more than.
- Uvix 4y agoAlthough in this case, with the insurance agent being the one to push UBS to go through with the deal, I would have thought UBS could get better terms.
- bryanlarsen 4y agoI doubt he did write the title, aren't editors usually responsible for titles. Which is unfortunate because the article's title is Betteridge's law without a question mark. Credit Suisse has a half trillion in deposits (aka liabilities), so UBS paid a half trillion dollars for Credit Suisse, minus the hard to value assets of Credit Suisse.
- riffraff 4y agoI'm pretty sure he writes his own titles in this case, this is a very personal column/newsletter, the titles are often references to previous things he mentioned and so on, a random title editor would not be up to par.
- loeg 4y agoHe writes his own titles; Money Stuff is a newsletter he enjoys substantial editorial control over. It's not an ordinary article or op ed at a news outlet.
- OJFord 4y agoRecent titles include: - Credit Suisse Puts On a Brave Face - Silicon Valley Bank Is For Sale - Crypto Bank Had a Boring Collapse - Goldman Wants to Be More Boring - AMC Apes Hate AMC's APEs ... He writes them. (And How I Wish He'd Drop The BuzzFeed-Style Casing)
- loeg 4y ago> And How I Wish He'd Drop The BuzzFeed-Style Casing Isn't it just conventional Title Case? Or are you objecting to capitalizing some particular words?
- OJFord 4y agoIt may be more conventional in the US. But yes, especially on words like 'be', & 'its' makes it read very 'Oh My God You Will Not Believe These 6 Reasons ...' to me.
- kgwgk 4y ago"You can, on the internet, find various expressions of astonishment that a bank as old and important as Credit Suisse turned out to be worth only $3 billion.[3] But this is, I think, the wrong way to look at it. Credit Suisse is not worth $3 billion; it is worth half a trillion dollars, more or less.[4] It's just that virtually all of that value — more than 99% of it — belongs to its creditors."
- MichaelZuo 4y agoIs there some additional meaning you want to convey by reposting this quote?
- OJFord 4y agoNot GP, but it's by my reading to show that it's not at all clickbaity, Levine certainly understands your point, and the headline position is reasoned.
- MichaelZuo 4y ago> and the headline position is reasoned. Huh? Doesn't it reinforce the point that UBS paid quite a lot for Credit Suisse?
- OJFord 4y agoI think when you say 'paid' you mean the literal transaction value + liabilities, whereas when Levine says it he means net of liabilities but also assets. Which is a bit different from not thinking about the liabilities at all (the classic layman response to a company bought out of administration for £1) in that it massively affects the scale - while it's not £1 it's still 'nothing', it's a rounding error on the liabilities, I don't have it hand to quote but there was something about 'as you can tell from the fact they tripled (? whatever it was) shareholder payout in a matter of hours'.
- MichaelZuo 4y ago
- indigodaddy 4y agoHe explains that $3B is almost nothing in the context of the deal and situation. It makes sense as you read the article.
- weinzierl 4y agoNegative, and likely with a non-negligible value. From what I understand the acquisition came with considerable state guarantees given to UBS for Credit Swisses liabilities. To a degree that I have heard it called a disguised bailout.
- cm2187 4y agoOn paper, UBS gets 35bn of CET1 + 16bn from the AT1 write off, for 3bn. You would have to believe the assets are massively mismarked for this to be off. I am not aware that it is the claim made against CS. The claim against CS I understand is not being able to turn a profit and large mishaps. Not the same thing as a bad book.