The Swiss Bundesrat (Alain Berset and Karin Keller-Sutter), Finma (Marlene Amstad), SNB (Thomas Jordan), UBS Group (Colm Kelleher) and CS (Axel Lehmann) will give a media conference at 19:30 Swiss time.
The fact that UBS is present should more or less confirm that there is a deal between CS and UBS.
Latest reports also state that the SNB is going to be providing 100B in liquidity to UBS if they need it.
Anyone have more information on the "emergency measures" that the Swiss govt used to skip the 6-week shareholder approval period? Couldn't find more information in English apart from the fact that they were being used and it seems very unlike Switzerland which has a reputation for very slow moving politics in general.
They will be paying just 9% of the market cap from a week ago.
EDIT: This is likely wrong, it's probably more like 20+%, I was using the $.27 a stock from an earlier price of about 1 billion. It appears that the actual price is more than 2 billion.
Bank runs are psychological in modern times; my next worry is that the news machine has begun to nibble on midsize banks, so that may be the next victim that gets devoured for content.
There are a few other large banks that have also their lot of challenges. At this stage, as you say, it is an irrational panic. CS was well capitalised by any modern standard and it would have required massive losses before creditors and depositors were seriously exposed. But no bank can resist a large enough bank run.
that's interesting, and exactly what regulators should expect. in a certain sense, the crisis starts when the bank starts taking in large uninsured deposits
To be pedantic, this was managed money, not deposited.
You can go to CS and say "Here, I have a million, please buy and sell some shares for me so my children will have two million each", or "here, we sell much in the runup to Christmas but our costs are evenly spread over the year, please manage our spare cash so we'll earn something when we can".
Officially, Boeing bought McDonnell-Douglas, but in the end the engineers at Boeing got pushed out and the bean counters at M-D were in charge and ran it to the ground.
The question is will prudent people run the new UBS? Or the same sort of people who got CS in the trouble that it is in?
your warning makes me think "wait till a bank and a media company start relying on the same AI for advice" - chatGPT, for the lulz
of course, employees of various companies in a place like NYC socialize together after work (in NY, everybody goes out after work on the regular, who wants to go home to a teeny airshaft apartment?) so they're basically engaging in a large game of telephone about what happened each day, might have the same effect.
Credit Suisse was a bit special. In the words of someone who's worked at several of the large banks there, "Credit Suisse was always a bit more more aggressive about risks".
If you mean whether the panic will move on to the next bank with a similar reputation, then…
>> was always a bit more more aggressive about risks
Isn't there always a handful of banks that are like that and isn't there always a handful of other banks that are invested? And isn't there always another set of banks that are invested in them? But is there really no chance of a devastating, cascading event? Should we really not panic? The only thing that holds banking together, is it that we don't panic? Because if so, then...
Maybe, but credit suisse was a mess even back in the "good days", since at least 2018. They went from blunder to blunder, even when other banks were doing just fine. The only other bank I can think of that has struggled as much is probably Deutsche Bank. In comparison, most other banks are very well capitalized even in the current situation.
No, to me it doesn't feel like 2008. It's kind of in that direction, but this is nowhere near as bad. In 2008, I was on a hair trigger. Then, I was prepared to take emergency action within 24 hours. This time around, I'm not there... yet.
Bear Stearns collapsed on March 16, 2008. Lehman Brothers on Sept 15, 2008. It took 6 months from the first major one to widespread carnage and bailouts. I can't tell what will be but I wouldn't assume we're out of the woods by any measure. The first dominos to fall are the ones holding most risk (SBV, CS), but the "safe" ones aren't really safe either.
I wonder what the Fed will do next i.e. conform to market expectations of a cooling off of QT and hikes and let inflation possibly rise or continue at 6%, or be resolute in raising rates to control inflation at the risk of a systemic failure.
What most people don't account for is that we're not in a classical inflation scenario - we're, at least fundamentally, in an energy cost inflation scenario where the countries with more than enough of oil and gas to spare jack up the prices just because they can.
And unfortunately, on top of that comes profiteering. The price hikes of everything that went far and beyond reasonable increases due to rising energy costs are insane - and outside of Spain which has introduced serious price controls and other counter-inflationary measures and Hungary where Orban misdirects EU funds into bribing his voters, no major Western government is doing anything about that.
At least the French are bringing out the pitchforks.
Markets don't arbitrarily inflate prices across asset classes (stocks, crypto, commodities, real estate). Classifying widespread worldwide inflation as energy cost inflation OR profiteering is (subjectively) an excuse for policy failure. Single family home owners in San Diego don't collude with condo owners in Vietnam. They do respond to bidders outbidding each other, flush with cash from asset values rising as a consequence of money printing worldwide. The core reason is money printing. The rest is noise. See charts for Fed balance sheet, M1 and M2 money supply for 10 years worth of printing in a year. The Cantillon effect makes people close to the money spigot richer at the expense of the masses.
The Fed knows it too, else QT and interest rate hikes wouldn't be used as weapons against inflation. Political messaging is oriented around not taking responsibility and blaming the pandemic, supply chain issues, Ukraine war etc. These reasons do play a role to be clear, but not to the extent that $ printing does.
Well, the Massachusetts Fed found that pass-throughs are 25% higher in a highly concentrated market, that these price increases last for longer, and that industries in the US are 50% more concentrated than they were in 2005.
So essentially, in more concentrated markets cost shocks are more likely to result in extended periods of inflation.
Why are things more concentrated? A lot of reasons, but a big one is that there were almost no effective antitrust actions for decades, and courts weakened the ability of the DOJ and FTC to enforce competitive guidelines. At the same time, Congress weakened the regulatory controls.
I removed this sentence as it is subjective and distracts from the original point. That said, the US supplies Ukraine with weapons and Intel, instead of making strong efforts to bring all parties to the negotiating table. China is now supplying weaponry to Russia. This is escalatory and takes us further from peaceful resolution. Of course, I don't have any insider information so this opinion is weakly held
Maybe, maybe not. Crushing Russian forces helps sell weapons and also helps take down an adversary while having Ukraine fight the war. The incentives behind blowing up the pipeline also appear to align with the US cause. I would take the media's reporting on this with a large grain of salt.
Interesting turn of phrase, and one used heavily in Russian propaganda to remove any agency from the Ukrainian people. If the Ukrainian government had listened to their western allies Zelensky would have been on an evacuation flight shortly after the first missile hit.
I'm quite sure they are not "having to fight" against Russia for anyone except themselves, and to ensure the continued existence of their country.
I don't mean that the US instigated the war or that Ukraine is somehow a puppet, but it is convenient for the US to not have to fight it and let Ukraine use US's weaponry, drones etc to fight this war. I am not Russian or a sympathizer, but also not blind to US incentives to sell weaponry in Europe, and hurt an adversary in Russia. It is true that everybody underestimated Ukraine.
The US is in the fortunate position where doing the right thing serves their geopolitical goals. That does happen sometimes. All the more reason to supply Ukraine with a lot of weapons quickly.
I agree but my devil's advocate response = I suspect that without enough incentive for a peaceful resolution, the more right thing (=seeking peace) falls out of favor. I know we've been told that Putin doesn't want to negotiate but I find it naive to take that message at face value, similar to how the US claims Russia blew up the pipeline while the US is the biggest beneficiary. Without going tinfoil hat, there is enough precedent for US lies (WMDs in Iraq, Libya etc) that I would question the messaging even though I agree Putin sucks.
Pursing peace at any cost is not the right thing. If the US has more incentive to encourage Ukraine to defend vigorously rather than paying Danegeld, well, that's no bad thing for the long term stability of the world as a whole. The only case I'd worry about the kind of thing you're suggesting is if the US were pushing Ukraine to counteratack hard into Russian territory and turn down an offer of a return to pre-2014 borders, and that seems unlikely so far - if anything so far it seems to be the US holding Ukraine back.
> Maybe. Russia's population is falling and Putin is getting older to the extent that such a war may not have happened 5-10 years from now.
We've been trying the "wait them out" strategy with North Korea and it's gone very badly IMO. At some point it's better to grasp the nettle, especially when you're lucky enough to get as clear-cut a conflict as this. There will probably never be a better time to draw the line and hold it.
> I am more worried about escalation, nukes, forever wars etc. Ukraine fighting for pre 2014 borders is one case that triggers this, among many others
Accepting peace on anything less than a return to pre-2014 borders would doom the world in the long term. It would set a clear precedent that anyone with nuclear weapons can take what they want with no downsides, and there's no coming back from that.
> I bet you the rebuilding phase will also involve American cos.
It probably will, and there will probably be corruption and looting and backhanders. It's going to suck, but there's no scenario in which the next ten or twenty years of being Ukraine doesn't suck. Kicking out Russia quickly and getting on with the rebuilding, ideally with international support for all the waste that that will involve, is the least-bad future.
> I agree but my devil's advocate response = I suspect that without enough incentive for a peaceful resolution, the more right thing (=seeking peace) falls out of favor. I know we've been told that Putin doesn't want to negotiate but I find it naive to take that message at face value
Well, you are right that cutting off military assistance to Ukraine would force it to "negotiate" (quotes because result would be more like a capitulation, considering the list of Russian demands). However, what would be the motivation for Putin to commit to peaceful resolution in such case instead of continuing the conquest of (weakened, out of arms and ammo) Ukraine?
It’s no use negotiating when the parties can’t come to a conclusion.
Russia wants to take Ukrainian territory, Ukraine wants to keep it and neither wants any compromise there between.
Also they probably are trying to get them to negotiate a ceasefire anyway, even if those talks aren’t being advertised, but I don’t have any inside info on that either.
If you're going to analyze the Ukraine war in terms of US policy then you'll have to take into account more than the financial world. The US's position in Ukraine affects a number of other policy positions like our political alliance's, how much we want to let Russia grow its power in opposition to our own, and even to Taiwan and how we want China to feel about any possible US responses to invasion there.
How are the US and NATO's actions escalating any further than that? Last i checked there was no Russian territory occupied by Ukrainian forces, let alone any hint of NATO involvement in achieving such an escalation.
>introduced serious price controls and other counter-inflationary measures
Price controls are not effective in curbing inflation [1] And they have a deleterious effect on production. For example: no farmer is gonna sell his produce at a price that is less than his cost to produce. So if you control the price, there will be nothing on the shelf.
The Fed had to know that as they kept pushing, more serious stress would show up in the financial system as they went higher. This is exactly what they have been looking for. To the Fed this means what they have been doing is working (their goal has rather openly been to slow the US economy, and to a lesser extent the global economy, to bring down inflation via demand destruction). Nothing quite brings economic growth to a halt like a large banking crisis and the corresponding panic.
I think it's very likely to be worse (certainly drastically more risky). The Fed has a history of hard landings.
There was a level at which more modest rates would have gradually bent inflation downward over time, and it would have taken a while (a year or two longer, say). IMO the Fed was too aggressive in trying to stop it asap. They went too far too fast and we'll see a rolling fallout from it for several years yet. Lower rates with elevated inflation for a bit longer, would have been the more prudent choice, than cranking the volume fast and risking a financial crisis.
Maybe, maybe not. The Fed has wiped out 6 months of QT's impact within a week. They might temporarily slow rate hikes but I am not convinced they will stop. I see this more as them plugging a hole in the economy. It will take a collapse for them to pivot and admit defeat to inflation.
They haven’t abandoned QT yet, Treasuries mature twice a month, mid month and end. Last week 7.1 billion in 3 year notes rolled off which was the only asset scheduled. There is a larger roll off end of month.
The “QE” money on the books is a loan as of right now which isn’t QE.
Now will QT continue? Probably not, we’re hitting a liquidity floor. I see rate hikes may continuing though.
The Fed injects money into the economy by buying US Treasuries or GSE MBS traditionally from the open market (QE).
During continued QE the Fed will re-purchase these assets when their existing ones mature. During QT on maturity rather than buy assets again they write them off and liquidity (money) is removed from the market.
They need to cut at least 100bps. This is the only way to bring all those mortgage and treasury bonds back a bit and not be so under water.
This may or may not restart inflation but it’s the only option that will be effective.
The Fed has been cargo-culting Volkner in the 80’s without considering this is a different beast. They needed to raise rates but they needed to do it far more deliberately and cautiously. And of course should have started sooner.
We need to accept multiple years of 6-10% (possibly more) inflation or collapse everything and create carnage no one wants to live in.
This round of rate rises seem so political. They know they were slow out of the gate so now seem to want to compensate, appear strong and even actively cause some damage to prove their commitment.
And all of this with the context that most of the inflation is supply side so interest rate rises are anaemic anyway.
I don’t see a pivot unfortunately even though it seems they are playing with fire here.
Deflation? Are you even understanding what’s going on right now? With 200+ banks insolvent basically? Hyper inflation is the risk right now. That it total anarchy as we see 40% unemployment. Pick your poison.
When deposits are destroyed, that causes deflation. Deposits aren’t being destroyed. But wealth, in the form of banks’ non-deposit liabilities, is.
The Fed would welcome such deflation (though not its cause). But that doesn’t seem to be likely. That said, nothing which is happening right now is inflationary other than, potentially, the Fed pausing its rate increases.
I'd argue deposits are being destroyed as banks no longer have the assets to make depositors whole. Of course central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out.
> central banks seem to be adopting the position that no depositors will lose any money and everyone will be bailed out
Not the Fed per se. And that’s the point. Quantity of deposits in the system is preserved. Wealth down. Fed support of banks up. How this balances is uncertain, but nothing is unilaterally inflationary.
I have been arguing for years that they'd never get rates back to where they were pre-GFC as so much debt has been taken on at low rates. Increasing rates to pre-GFC levels will have a massive impact on the ability of borrowers to service debt and push down asset prices.
Now that they're trying to put rates back to pre-GFC levels we can see that playing out. If they choose to continue of this path it will lead to a significant recession.
Thanks for the support. I think in general people are tired of doom and gloom predictions and analysis. Downvoting, even if you know it to be possibly right, feels good.
I’m not trying to doom and gloom though. I’m just saying the Fed did not consider the time aspect of all the bonds/etc and have haphazardly raised rates too fast. If they slow it down it’s not such an issue since bonds respect time. It has been too much too fast. Erratic. Especially since just over a year ago they guided totally differently.
So they need to cut. We need to deal with reasonable inflation for at least 4 more years and then we can aggressively hike rates if need be as the mountain of low interest bonds will be turning the corner.
Bear Stearns was a very different case. Instead of a run on deposits, their credit disappeared. Bear operated on a system of continuous credit. They would pick up the phone and call some other place and borrow. Everyone else collectively decided to just stop lending to them, quite suddenly. They had been writing down a lot of losses but when their guy went on CNBC in March 2008 to announce that his bank had plenty of liquidity, the next day literally nobody on the street would lend them anything. Then the Fed had to bail them out on Saturday. It was really a completely different type of thing.
Everything is different at a granular level but similar at a higher abstraction. In all cases (SVB, BS), banks ran out of liquidity and had paper losses on current investments that would see them go under. Ultimately, if you run out of money, you're bankrupt as a country/company(even banks)/individual
I'm glad they managed to get something done before Asia wakes up. We are pretty much dependent on a relatively stable financial market. TBH I'm a bit scared that a financial meltdown is imminent and many of us will lose jobs in a sudden.
This deal stinks of panic. I know they’re rushing to calm the market but I think it will have the opposite Streisand effect. Last week it was 30B CHF now they’re throwing 100B CHF to make it work? Something is terribly wrong with CS book.
They've said in the press conference that SNB is providing 100B CHF in liquidity, and (IIUC) additionally the state is insuring UBS against 9B in losses from the deal.
Yes, and last week the backstop was 30B CHF. So why did they increase that by more than 3x within days? Makes no sense other than UBS finally looked at the books and freaked out.
UBS cant decide on that. The swiss goverment has to, and apparently it decided to make it more secure, because the market did not trust it's previous safety net.
>> Yes, and last week the backstop was 30B CHF. So why did they increase that by more than 3x within days? Makes no sense other than UBS finally looked at the books and freaked out.
There were likely internal (to CS) marks based on assumptions. The assumptions may have assumed baseline market conditions. External parties came in and didnt want to assume baseline market conditions and/or didnt agree with the assumptions, so they were changed to more conservative figures, and new marks came out. The new marks were significantly lower. They have veto power over the deal and the government was forced to backstop to make the deal happen.
No, the 100B CHF is just to bridge the liquidity. If they didn't provide this then Credit Suisse might need to sell a big chunk of its bond portfolio for further withdrawals - which would incur a big loss compared to holding the bonds until maturity. Same issue and fix as for Silicon Valley Bank. I don't know the terms for accessing this emergency liquidity but I assume it's not going to be cheap.
At market rates, it should cost the same as selling the bonds now.
And selling the bonds now would put them in the red.
So either they have been given better-than-market rates, or they're pulling some other accounting trick to make it look like there is more of value here than there really is...
as just confirmed in the press conference, the overall liquidity safety net is actually 200B CHF from SNB. Then 9B of guarantees from the Swiss government to UBS for potential risks
I’m not sure how Streisand effect is relevant here. Sufficiently large backstop removes panic because if the govnmt backstops enough there can’t be a loss for depositors. It’s always a balance between safety of depositors and liability of the government. But increasing backstop just ensures that depositors are ever safer.
Man, this was more serious than I thought. They rushed to get the whole thing done during the weekend and pushed it through bypassing all the shareholders.
This year is getting worse by the minute. Insane inflation killing many industries. AI threatening to take jobs - and probably actually taking a few art jobs. Now cascading bank runs and the end of one of the oldest banks in the world as an independent entity.
CS has been lurching from crisis to crisis for as long as I can remember. The tide doesn't have to go out very far when they've been swimming naked for years now.
I heard shipping containers have been piling up at China’s ports and China exports are way down - with quite a few factory suspending operations. Supposedly the US stopped buying because inflation means people focus on the necessities like food.
Container movement has been erratic since 2020. I would look deeper before inferring causes for piles of them. (Once you actually get evidence of piles of them, because it seems you don't have that yet.)
There are many people that track actual goods. It's better than looking for a proxy.
The thought experiment then is to ask "What mechanisms connect Chinese exports with inflation?"
To get a better understanding of that, one might "rewind" time to look back at what those containers were carrying when there was a container shortage.
Since containers are a mechanism for moving goods, one might look at supply and demand of goods to try to understand what that relationship is.
Historically, when supplies are tight, retailers order the same order from multiple suppliers in the hope that one of them will come through. This typically results in adding production capacity to meet this "shadow" demand (there are orders for 300 widgets but the retailer on the other end really only wants 100 widgets, they have just ordered 100 from three different distributors who each passed on that order to the factory).
When the factories ramp up to cover that shadow demand, they put a lot of product into the distribution channel but retailer cancels their other two orders after one is filled. As a result there is now 2x the "demand" level sitting in distribution. The next time the retailer orders, their orders are satisfied out of existing stock.
Until the distributors have worked through this "excess" they don't order anything from the factories and the factories have nothing to do and don't need to ship anything so the containers sit there empty.
This "boom" and "bust" cycle is an oscillation that occurs in systems that are not critically damped (a term from systems analysis). During the 2020/2021 years a lot of demand was unmet and we had the "supply chain crisis." Once things ramped up, it is expected to have an "over supply" crisis.
Just take note that mergers of CS and UBS have been discussed a few times over the past 20 years. Don’t be fooled into thinking that there wasn’t a lot of planning/analysis already done for this. In fact it might even have happened the other way around in 2008 and again there was no doubt planning for that too!
The vast majority of artists don’t make a living selling the “generic art” that enthusiasts are so sure AI will disrupt (and if they do, certainly not individual pieces to hotels/coffee shops/etc, but bulk licensing through agencies)
At most it would be replacing one licensing middleman for another.
In the space of 12 weeks, AI seems to have come from nowhere to now having the skills to replace lots of knowledge workers and creatives. Though there is some way to go, I think it’s pretty bleak and scary for employment prospects.
Interesting ongoing Twitter space with several Financial Industry veterans discussing this. Going as of 1:30 Central and will probably go at least another 2 hours. Mario usually gets some fairly large names to show up.
They probably didn't snd still don't. If JPM buying Bear Sterns is any metric, I would be worried that the government would 'ask' me to rescue another bank, and then take me to court over it for the next decade.
It's understandable people are mad at the banks and don't want taxpayer money propping up for-profit institutions. But what is the rationale for coaxing companies into taking risks at their behest that they basically know is going to be worse than you think going in?
This is the problem with banking - they mess up, get bought buy a competitor to sweep the problem under the carpet and kick the can down. this reduces competitors in the marketplace. Eventually there is a state bailout
There is already a state bailout. CS got loaned $54B. UBS got guaranteed another $100B loan for buying CS - and I read from another post (https://news.ycombinator.com/item?id=35222147) the state will cover up to $9B in losses from the buyout.
I wonder if there’s anything to learn from the Canadian banking industry, which, through regulation, basically didn’t participate in the 2008 collapse and seems to be in fine shape during all this. (Or maybe it’s not and we’re up next!)
I love the Bloomberg headline. It does not say "... in Historic Deal to End the Credit Suisse Crisis." Instead, it says "... in Historic Deal to End Crisis." On the remote chance that you thought there might be some sort of global bank crisis, Bloomberg tells you that it is already ending. Since Bloomberg tries to manipulate people's perception so openly (most people do not read beyond the headline), this makes me even more worried. What else its out there that they don't want me to know?
Mainstreams are the Journal and Financial Times, but practically every genre has droves of researchers cranking out everything from the questionable to prescient. (Almost universally, free blogs are the former.)
You are not saying that WSJ has anything to do with truthful reporting or investigative journalism? FT used to be better, but I think now descended to the same level. You can used them to gauge the current market sentiment or the sentiment they are trying to push, but certainly not the financial reality/truth. You get periodic bright spots like Theranos reporting, but that’s rare.
Skip the opinion section and headlines. The meat of both papers is solid, with ongoing investigative journalism. After that, you need to pay up for industry periodicals, et cetera.
Indeed. I think a lot of people are unaware or misinformed than hundreds of banks are insolvent right now. Something like 700B in deposits were pulled last week and that will accelerate.
50% of existing mortgages were written between 2020 and 2022 at around 3% interest at 30 years. The banks holding all those are underwater as interest rates on much safer treasuries are higher. Imagine if we start to see a bit of defaulting on those mortgages!
Mix in all the long dates treasuries they’re sitting on.
The FDIC doesn't have enough money to even cover the <250k deposits at the hundreds of banks that are insolvent when marked to market.
So we’ll either see emergency rate cuts which will increase inflation or we see the fed ignite it and the system collapses. Or they print money to backstop it all resulting in more inflation. Possibly hyper inflation.
I don't know about other borrowers but my 2.5% 2020 mortgage was sold to (government owned) Fannie Mae (or Freddie Mac, I forget which) more or less immediately.
That’s maybe half of existing mortgages but the problem has been that banks sell to Freddie to get cash to loan. Well, loan demand was incredibly low. So they bought bonds and held onto mortgages.
Also keep in mind many mortgages are non-conforming so Freddie can’t buy them.
Housing prices haven’t cratered yet - the banks wouldn’t mind some of those loans defaulting, because they could sell and get the principal out there at higher rates.
Worse for the banks, those on low rate loans will sit tight.
What is happening right now is the byproduct of governments not wanting to face an economic crisis and a health crisis at the same time.
Now the health crisis is over (or better yet the panic around COVID has subsided) now we have to face the economic crisis that comes with closing down the world for 2 years.
We have only just pulled that forward. There is no free lunch.
However, governments used monetary policy much too aggressively (printing money) whereas they should have been using fiscal policy (taxing rich people). Now comes the reckoning.
Pretty scary that our financial system can't take a few weeks of deliberation and the deal needs to rushed during the weekend.
Instead of general ranting I would like to learn who exactly goes bust if we allow the uncertainty for a few weeks? Is it more than just a gift to shareholders and market speculators?
CS probably goes bust as everyone pulls their money out, and has to sell all of their assets at fire sale prices. If they lose more than their capital buffer then people may not get their money back. That then has knock on effects which are harder to predict but might include other small banks with exposure to CS (and in the worst case, even other large banks).
Just writing down here as a memoir looking back at this news in 10 years, as we look back now on the fall of Lehman in 2008 - we can say that “we were there…”
It's far from clear what this buy/bailout does to "end" the crisis. Was the crisis caused by Credit Suisse being too small?
> The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
This makes more sense. It's an attempt to manipulate world financial markets. But if the deal doesn't address the root cause, the same situation will repeat soon enough.
There's also this from a different article:
> The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn’t invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10%.
So maybe there's something to be gained by making UBS/CS bigger. It allows investment by other private parties that would have otherwise triggered onerous provisions.
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[ 1.4 ms ] story [ 276 ms ] threadThe fact that UBS is present should more or less confirm that there is a deal between CS and UBS.
Latest reports also state that the SNB is going to be providing 100B in liquidity to UBS if they need it.
https://www.youtube.com/watch?v=gmT0-w_0Ex4
It's that simple. Either they get a % of something or 100% of 0.
Especially since now the purchase price went to $2Bi.
EDIT: This is likely wrong, it's probably more like 20+%, I was using the $.27 a stock from an earlier price of about 1 billion. It appears that the actual price is more than 2 billion.
You can go to CS and say "Here, I have a million, please buy and sell some shares for me so my children will have two million each", or "here, we sell much in the runup to Christmas but our costs are evenly spread over the year, please manage our spare cash so we'll earn something when we can".
It is not surprising at all that all the mistrust finally caught up with CS.
And confidence has been lacking for much longer than this recent crisis.
Officially, Boeing bought McDonnell-Douglas, but in the end the engineers at Boeing got pushed out and the bean counters at M-D were in charge and ran it to the ground.
The question is will prudent people run the new UBS? Or the same sort of people who got CS in the trouble that it is in?
This should prove a cash cow for UBS so long as they ruthlessly trim CS.
The final deal is a bit different from OP 3.3bn, 100bn liquidity and 8bn indemnity from losses (more than market value of CS Friday!)
The beast must be fed.
[0] https://www.cnbc.com/2023/03/18/midsize-us-banks-reportedly-...
of course, employees of various companies in a place like NYC socialize together after work (in NY, everybody goes out after work on the regular, who wants to go home to a teeny airshaft apartment?) so they're basically engaging in a large game of telephone about what happened each day, might have the same effect.
If you mean whether the panic will move on to the next bank with a similar reputation, then…
Isn't there always a handful of banks that are like that and isn't there always a handful of other banks that are invested? And isn't there always another set of banks that are invested in them? But is there really no chance of a devastating, cascading event? Should we really not panic? The only thing that holds banking together, is it that we don't panic? Because if so, then...
I wonder what the Fed will do next i.e. conform to market expectations of a cooling off of QT and hikes and let inflation possibly rise or continue at 6%, or be resolute in raising rates to control inflation at the risk of a systemic failure.
And unfortunately, on top of that comes profiteering. The price hikes of everything that went far and beyond reasonable increases due to rising energy costs are insane - and outside of Spain which has introduced serious price controls and other counter-inflationary measures and Hungary where Orban misdirects EU funds into bribing his voters, no major Western government is doing anything about that.
At least the French are bringing out the pitchforks.
The Fed knows it too, else QT and interest rate hikes wouldn't be used as weapons against inflation. Political messaging is oriented around not taking responsibility and blaming the pandemic, supply chain issues, Ukraine war etc. These reasons do play a role to be clear, but not to the extent that $ printing does.
https://www.bostonfed.org/publications/current-policy-perspe...
So essentially, in more concentrated markets cost shocks are more likely to result in extended periods of inflation.
Why are things more concentrated? A lot of reasons, but a big one is that there were almost no effective antitrust actions for decades, and courts weakened the ability of the DOJ and FTC to enforce competitive guidelines. At the same time, Congress weakened the regulatory controls.
Putin literally said there are no negotiations possible.
The only way to force Putin to the negotiation table is to crush the Russian forces.
Interesting turn of phrase, and one used heavily in Russian propaganda to remove any agency from the Ukrainian people. If the Ukrainian government had listened to their western allies Zelensky would have been on an evacuation flight shortly after the first missile hit.
I'm quite sure they are not "having to fight" against Russia for anyone except themselves, and to ensure the continued existence of their country.
I am more worried about escalation, nukes, forever wars etc. Ukraine fighting for pre 2014 borders is one case that triggers this, among many others
I bet you the rebuilding phase will also involve American cos.
We've been trying the "wait them out" strategy with North Korea and it's gone very badly IMO. At some point it's better to grasp the nettle, especially when you're lucky enough to get as clear-cut a conflict as this. There will probably never be a better time to draw the line and hold it.
> I am more worried about escalation, nukes, forever wars etc. Ukraine fighting for pre 2014 borders is one case that triggers this, among many others
Accepting peace on anything less than a return to pre-2014 borders would doom the world in the long term. It would set a clear precedent that anyone with nuclear weapons can take what they want with no downsides, and there's no coming back from that.
> I bet you the rebuilding phase will also involve American cos.
It probably will, and there will probably be corruption and looting and backhanders. It's going to suck, but there's no scenario in which the next ten or twenty years of being Ukraine doesn't suck. Kicking out Russia quickly and getting on with the rebuilding, ideally with international support for all the waste that that will involve, is the least-bad future.
Well, you are right that cutting off military assistance to Ukraine would force it to "negotiate" (quotes because result would be more like a capitulation, considering the list of Russian demands). However, what would be the motivation for Putin to commit to peaceful resolution in such case instead of continuing the conquest of (weakened, out of arms and ammo) Ukraine?
Russia wants to take Ukrainian territory, Ukraine wants to keep it and neither wants any compromise there between.
Also they probably are trying to get them to negotiate a ceasefire anyway, even if those talks aren’t being advertised, but I don’t have any inside info on that either.
How are the US and NATO's actions escalating any further than that? Last i checked there was no Russian territory occupied by Ukrainian forces, let alone any hint of NATO involvement in achieving such an escalation.
Price controls are not effective in curbing inflation [1] And they have a deleterious effect on production. For example: no farmer is gonna sell his produce at a price that is less than his cost to produce. So if you control the price, there will be nothing on the shelf.
[1]https://www.stlouisfed.org/publications/regional-economist/2...
Or you can do post-fact price controls by comparing profits now with average profits over the last years and taxing everything above at 100%.
All it needs is the political will to help the people.
The fed has already added hundreds of billions to their books this week and is looking at a 25bps hike. From where we're at, this is effectively QE.
There was a level at which more modest rates would have gradually bent inflation downward over time, and it would have taken a while (a year or two longer, say). IMO the Fed was too aggressive in trying to stop it asap. They went too far too fast and we'll see a rolling fallout from it for several years yet. Lower rates with elevated inflation for a bit longer, would have been the more prudent choice, than cranking the volume fast and risking a financial crisis.
How are you calculating that?
The “QE” money on the books is a loan as of right now which isn’t QE.
Now will QT continue? Probably not, we’re hitting a liquidity floor. I see rate hikes may continuing though.
During continued QE the Fed will re-purchase these assets when their existing ones mature. During QT on maturity rather than buy assets again they write them off and liquidity (money) is removed from the market.
This may or may not restart inflation but it’s the only option that will be effective.
The Fed has been cargo-culting Volkner in the 80’s without considering this is a different beast. They needed to raise rates but they needed to do it far more deliberately and cautiously. And of course should have started sooner.
We need to accept multiple years of 6-10% (possibly more) inflation or collapse everything and create carnage no one wants to live in.
And all of this with the context that most of the inflation is supply side so interest rate rises are anaemic anyway.
I don’t see a pivot unfortunately even though it seems they are playing with fire here.
They need to hold pattern for a few months, then continue raising. The bank crisis is showing no signs of prompting deflation.
When deposits are destroyed, that causes deflation. Deposits aren’t being destroyed. But wealth, in the form of banks’ non-deposit liabilities, is.
The Fed would welcome such deflation (though not its cause). But that doesn’t seem to be likely. That said, nothing which is happening right now is inflationary other than, potentially, the Fed pausing its rate increases.
Not the Fed per se. And that’s the point. Quantity of deposits in the system is preserved. Wealth down. Fed support of banks up. How this balances is uncertain, but nothing is unilaterally inflationary.
I have been arguing for years that they'd never get rates back to where they were pre-GFC as so much debt has been taken on at low rates. Increasing rates to pre-GFC levels will have a massive impact on the ability of borrowers to service debt and push down asset prices.
Now that they're trying to put rates back to pre-GFC levels we can see that playing out. If they choose to continue of this path it will lead to a significant recession.
I’m not trying to doom and gloom though. I’m just saying the Fed did not consider the time aspect of all the bonds/etc and have haphazardly raised rates too fast. If they slow it down it’s not such an issue since bonds respect time. It has been too much too fast. Erratic. Especially since just over a year ago they guided totally differently.
So they need to cut. We need to deal with reasonable inflation for at least 4 more years and then we can aggressively hike rates if need be as the mountain of low interest bonds will be turning the corner.
Hah!
https://en.wikipedia.org/wiki/Credit_Suisse#Controversies
The purchase price is 3B CHF.
There were likely internal (to CS) marks based on assumptions. The assumptions may have assumed baseline market conditions. External parties came in and didnt want to assume baseline market conditions and/or didnt agree with the assumptions, so they were changed to more conservative figures, and new marks came out. The new marks were significantly lower. They have veto power over the deal and the government was forced to backstop to make the deal happen.
And selling the bonds now would put them in the red.
So either they have been given better-than-market rates, or they're pulling some other accounting trick to make it look like there is more of value here than there really is...
You assume that the spread is zero and that there are actually buyers. But I might be wrong here, I don't know about the liquidity of these bonds.
Edit: and now CBs come out with additional coordinated measure.
They’re clearly insolvent without this, no? The Swiss government forced UBS to do this at gunpoint, why else would they do that
This year is getting worse by the minute. Insane inflation killing many industries. AI threatening to take jobs - and probably actually taking a few art jobs. Now cascading bank runs and the end of one of the oldest banks in the world as an independent entity.
They are ‘Too big to fail’ until they fail.
ironically long duration tech stocks and crypto have been surging all year and outperforming basically every other sector
There are many people that track actual goods. It's better than looking for a proxy.
To get a better understanding of that, one might "rewind" time to look back at what those containers were carrying when there was a container shortage.
Since containers are a mechanism for moving goods, one might look at supply and demand of goods to try to understand what that relationship is.
Historically, when supplies are tight, retailers order the same order from multiple suppliers in the hope that one of them will come through. This typically results in adding production capacity to meet this "shadow" demand (there are orders for 300 widgets but the retailer on the other end really only wants 100 widgets, they have just ordered 100 from three different distributors who each passed on that order to the factory).
When the factories ramp up to cover that shadow demand, they put a lot of product into the distribution channel but retailer cancels their other two orders after one is filled. As a result there is now 2x the "demand" level sitting in distribution. The next time the retailer orders, their orders are satisfied out of existing stock.
Until the distributors have worked through this "excess" they don't order anything from the factories and the factories have nothing to do and don't need to ship anything so the containers sit there empty.
This "boom" and "bust" cycle is an oscillation that occurs in systems that are not critically damped (a term from systems analysis). During the 2020/2021 years a lot of demand was unmet and we had the "supply chain crisis." Once things ramped up, it is expected to have an "over supply" crisis.
Which artists and writers aside from pretentious copy cats are getting replaced by AI?
I feel artists selling “generic art” for pictures in lobbies and homes are probably going to be out of a job.
At most it would be replacing one licensing middleman for another.
And the agencies pay the artists, yes? Now you can just get art from MidJourney and skip the artists.
https://twitter.com/MarioNawfal
It's understandable people are mad at the banks and don't want taxpayer money propping up for-profit institutions. But what is the rationale for coaxing companies into taking risks at their behest that they basically know is going to be worse than you think going in?
If only Bloomberg News had competitors.
https://wallstreetonparade.com/
> End
> Crisis
Shit's starting. Fasten your seat belts. One week from now things will be different.
50% of existing mortgages were written between 2020 and 2022 at around 3% interest at 30 years. The banks holding all those are underwater as interest rates on much safer treasuries are higher. Imagine if we start to see a bit of defaulting on those mortgages!
Mix in all the long dates treasuries they’re sitting on.
The FDIC doesn't have enough money to even cover the <250k deposits at the hundreds of banks that are insolvent when marked to market.
So we’ll either see emergency rate cuts which will increase inflation or we see the fed ignite it and the system collapses. Or they print money to backstop it all resulting in more inflation. Possibly hyper inflation.
Also keep in mind many mortgages are non-conforming so Freddie can’t buy them.
Worse for the banks, those on low rate loans will sit tight.
https://www.youtube.com/watch?v=0SYpUSjSgFg
What is happening right now is the byproduct of governments not wanting to face an economic crisis and a health crisis at the same time.
Now the health crisis is over (or better yet the panic around COVID has subsided) now we have to face the economic crisis that comes with closing down the world for 2 years.
We have only just pulled that forward. There is no free lunch.
However, governments used monetary policy much too aggressively (printing money) whereas they should have been using fiscal policy (taxing rich people). Now comes the reckoning.
Exactly, the lost production due to lockdowns and massive government stimulus wasn't free. We're paying for it now.
Instead of general ranting I would like to learn who exactly goes bust if we allow the uncertainty for a few weeks? Is it more than just a gift to shareholders and market speculators?
https://www.20min.ch/story/jetzt-informiert-der-bundesrat-ue...
> The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
This makes more sense. It's an attempt to manipulate world financial markets. But if the deal doesn't address the root cause, the same situation will repeat soon enough.
There's also this from a different article:
> The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after its largest investor, the Saudi National Bank, said it wouldn’t invest any more money into the bank to avoid tripping regulations that would kick in if its stake rose about 10%.
https://www.krqe.com/news/business/swiss-to-hold-news-confer...
So maybe there's something to be gained by making UBS/CS bigger. It allows investment by other private parties that would have otherwise triggered onerous provisions.