Another Sunday, another bail-out.

Part one ; what’s going on with the banks?

Just how confusing news of the take over of Credit Suisse by UBS appears is in this paragraph clipped from the FT’s overnight report on the matter.

“This is no bailout. This is a commercial solution,” said Swiss finance minister Karin Keller-Sutter. “The bankruptcy would have had huge collateral damage on the Swiss financial market and with a risk of contagion internationally. “The US and UK were very grateful for this solution . . . they really feared a bankruptcy of Credit Suisse,” she added.

So what’s the difference between a bail-out , a commercial solution and a bankruptcy?

Credit Suisse were heading for bankruptcy, which was everyone’s nightmare (apparently)

UBS entered into a commercial solution that offers holders of Credit Suisse equity and debt something for their paper  (apparently).

This differs from SVB, whose UK arm HSBC bought for a pound, by $3.25bn.

What links Silicon Valley Bank and Credit Suisse?

It appears both were badly run banks , that made mistakes which will cost shareholder , bondholders and their staff.

UBS will pay about SFr0.76 a share in its own stock, worth SFr3bn, up from a bid of SFr0.25 earlier on Sunday worth around $1bn that was rejected by the Credit Suisse board. However, the offer remains far below Credit Suisse’s closing price of SFr1.86 on Friday.

And  under the terms of the deal, some SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.

We don’t yet know how many people will lose their jobs over this but if I was working at Credit Suisse this morning, I’d be making plans.

Meanwhile UBS has strengthened its position as the Swiss bank.

What unites the two is that their customers are being protected SVB’s by HSBC in the UK and the US Treasury in America, Credit Suisse’s customers are being protected by UBS, it’s biggest and fiercest rival.

Part two; what’s going on in my head.

Every day is like Sunday

By coincidence, last night I was listening to Morrissey singing his call for armageddon to fall on a coastal town where every day is like Sunday.

I wasn’t in  my bedsit but in the Hammersmith Apollo alongside some dodgy looking men who clearly had different views to mine about immigration.

Back in October 1987, when Morrissey wrote “Every day is like Sunday” , Sundays were the days when things didn’t happen, in 2023 Sundays are the days when a bank does or doesn’t go bust.

I was with a banking lawyer at the gig, as we walked to the bus station afterwards he said “it’s bad , but it doesn’t feel like 2008“.

And I thought how little the audience of the sold-out Morrissey concert has changed over the forty years since Morrissey changed the way some of us listened to music.

The song was written as the financial crash of 1987 was happening.

Did we think that we would be watching Morrissey singing the same tune all those years later?

Did we thing that  world markets be suffering the same financial insecurity?

Every day’s like Sunday ‘s original artwork

Every morning is like Monday

The Central Banks were, on Sunday,  creating the liquidity for the derivatives market to function this (Monday) morning, broader action from these banks may still be required as neither in the States or in other world markets does there seem much certainty about what’s really happening to the cat in Schrödinger’s experiment.

Did we think that barely 13 years after 2008 and nearly 40 years after the “big-bang” in financial services, that tens of thousands of banking staff will return to work , with the worry that their  work won’t return to them?

At least this time, it looks like the old dictum that banks privatize the gains and socialize the losses is being turned round. In 1987 and 2008 it was the sad inhabitants of coastal towns who paid the price of financial failure, today it looks like it will be the hedge fund managers and the private markets who prosper off leverage , who will be worse hit.

But filing into the London night, I saw my generation whose retirements are based on private pensions, private wealth and a financial system that works and I sighed. We have little more certainty today, than when Morrissey first sang this song. The girl on the promenade, is now the granny in the teashop.

If Sunday’s are for banking bail-outs, then we really are in “the coastal town, they forgot to close down“.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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