As I warned about many times before (#UBS ENCORE SERIES), the rescue of Credit Suisse was surely going to put #UBS in great danger and, as expected, the bank is now going through an existential crisis.
The extent of the existential crisis was already clear in their Q4-23 results, where #UBS stretched its accounting (shenanigans) to such a degree that their numbers almost resembled they were bailed out by Credit Suisse and not the opposite: “DID CREDIT SUISSE BAIL OUT $UBS?”. This crisis is now starting to become public dominion since this news hit the tape: “Switzerland says UBS may need more cash. The bank is fuming – CNN”
So what’s going on? Not only did the Swiss government change the laws overnight last year, unconstitutionally (like bypassing shareholders’ approval or repaying Arab shareholders while nuking AT1 bondholders), to orchestrate #UBS and Credit Suisse merger (also with a timely liquidity injection from the #FED into the imploding Credit Suisse US operation), but now that they figured out the huge nuclear-ticking bomb they placed right in the middle of their country’s financial system, they are trying to make up for it in a way that will effectively choke a bank already short of breath.
Hold on a second, how come a bank that booked 29bn+ in profits (UBS breaks record with $29bn profit after Credit Suisse deal) 2 quarters ago is now suddenly short of capital? Those “profits” were possible thanks to the regulators allowing #UBS to use a very popular trick nowadays: book assets deep underwater in the Hold To Maturity books at their nominal value instead of the real market one.
Unfortunately for #UBS though, 2024 IS THE YEAR WHEN “HIDE TILL MATURITY” ENDS and after being forced to sell its soul to it, now the bank sees the white in the devil’s eyes.
Of course, investors swallowed not only the bite and the hook but also the whole line, stampeding into #UBS stock in a great display of unbelievable #FOMO stupidity since #UBS took over Credit Suisse on the 19th of March 2023.
Unfortunately for the many stakeholders involved, now reality is catching up, and listening to what #UBS insiders have to say (they are particularly open to sharing their frustration lately) feels like watching the scene from the movie Titanic when after hitting the (Credit Suisse) iceberg, the captain, the crew and then the passengers realize the ship is going to sink. UBS is a G-SIB bank that, after acquiring Credit Suisse assets, is now double in size, so yes you can say they are too big to fail but at the same time they are too big to be rescued in the era of Central Banks dealing with losses. As a matter of fact, The SNB reported a definitive loss of CHF3. 2 billion ($3.6 billion) for the 2023 reporting year, following a huge loss of CHF132. 5 billion in 2022 (when Credit Suisse was still afloat!) and in 2023 its losses were not “that bad” thanks to the gains in its huge US #stocks and foreign government bonds portfolio (rates came down sharply in Q4-23 helping them big time). More details in my old post here.
So what’s going to be the end game here? Personally, I expect #UBS will be allowed to trigger the break-up clause in their M&A agreement with Credit Suisse, and then Credit Suisse’s old operations across the globe will be split into several smaller “banks” and recapitalized by local central banks with the #FED in the lead. The capital injection won’t be able to buffer the gigantic amount of losses from Credit Suisse’s toxic assets and derivative books, especially Archegos ones, so counterparty banks will be hit with a share of the losses proportionally to the amount of exposure they carried against Credit Suisse positions. Will #UBS be “safe” at this point? Unfortunately, no, and the reason is they were the biggest risk counterpart of Credit Suisse still. On top of that, the bank is dealing with toxic assets of its own, in particular from Asian private banking operations where for years the bank was very loose in providing equity financing and asset financing to HNWI against collateral that is not only far from enough to cover the losses but cannot even be liquidated since the market is very illiquid and most of these assets were totally private unlisted ones. Not only did #UBS make a big push for Asia business at the top right before Covid, but they even made the typical trader mistake of doubling down on deep underwater positions in a (disillusioned) hope for a comeback: UBS sees Asia as its future growth engine after Credit Suisse merger boosted its regional footprint, CEO says.
I know, this already looks like a big mess from the outside and I did not even start to talk about the information that comes from the inside of #UBS!
According to my sources, people that I have known for many, many years, every former Credit Suisse employee is a “dead man walking” inside the bank. However, headhunters, friends of mine, not only confirmed the job market is literally flooded with ex-Credit Suisse bankers’ CVs but now also #UBS ones. Why does everyone want to leave so desperately?
- “The investment banking business, especially advisory and Equity Capital Markets, is totally dead. People are wandering around the office without much to do, seniors try to set up meetings with prospects everyone knows is just an excuse to show they are doing something. Juniors just update the same pitches every day, they are learning nothing and becoming more and more frustrated. So many people are spending working hours going out for interviews and no one cares since everyone is doing it”
- “There is so much silence on the Hong Kong trading floor these days, people barely talk to each other, and when they do they go out for a coffee because for sure they are talking bad about the bank and their managers”
- “Roger Federer is being taken across the world to UBS offices like a Holy Mary trying to boost the troops’ morale, but I am not sure hearing about his success stories is really raising people’s mood knowing many of them might be collecting their last paycheck”
- “The management only cares about the private bankers, everyone else is left on their own. They know that every banker they lose is assets leaving the building for good, but they are frustrated because their clients are frustrated and between the bank and their clients, I bet they will all choose to defend their portfolio no matter how fat the commissions they are being promised”
- “I booked 5 meetings with prized hedge fund clients in Singapore, I flew there and all of them canceled the meeting. I spent 3 days in Singapore just strolling around the city and spending time in coffee shops because there was not even a spare desk where I could sit at the office”
- “MDs are dropping like flies, some of them retiring at not even 50 years old, everyone knows they are just being kicked out since there is nowhere else they can go”
- “The UBS ski trip this year was a show of misery, everyone paid for their own expenses, including flights and hotels. We just grabbed a drink sometimes after hitting the slopes and then went to bed, no one was in the mood for bonding or partying”
- “If I book a trade in a day I feel so happy, there are people that do not even see a trade for weeks, in particular in structuring”
- “Every month you just clip a coupon and that’s it, then you hope to get to the next salary. Senior colleagues are telling crazy stories of when the bank fired 2000 people in London in 2014 and they only discovered when they showed up for work and their badge was disabled. I won’t be surprised if that happens again”
I can continue for long with all the feedback I gathered, but I believe it’s enough.