The one with 167 years of history$Credit Suisse (CS.US)$It has been riddled with negative news for several years, and was attacked by competitors after being thundered$UBS Group (UBS.US)$annexation.

Regarding the two most controversial points of the deal, “Shareholders are denied the right to decide, and claims are riskier than equity,” the Swiss authorities' bandit logic seems to have reached the extreme.

As can be seen from the scene of the incident, Credit Suisse was shaken by the European and American banking turmoil, and under the weight of global regulation, the Swiss authorities must resolve the risk through a merger. In an urgent and difficult situation, shareholders were denied the right to decide, and in order to quell shareholders' anger, the Swiss authorities ignored the order of settlement.

This article is based on media interviews with more than a dozen people involved in crazy trading over the weekend to restore the “scene of the crime” where Credit Suisse was destroyed by sorting through it.

Crisis-ridden regulation comes forward to appease

Following the collapse of banks in Silicon Valley, which triggered a wave of panic, another banking storm swept through the European and American markets.

On March 15 (last Wednesday), Credit Suisse's European and US stocks fell 30% intraday and closed down more than 20%, the biggest one-day decline in history and eight consecutive days of decline.

The bond market was full of panic. The one-year credit default swap (CDS) for Credit Suisse bonds soared from 799 basis points to 3,701 basis points, the highest since the financial crisis.

Banks that are exposed to Credit Suisse risk are desperate to hedge risks,It marks the beginning of an all-out panic in the European and American banking industry.

The price of CDS was so high that it didn't make much sense to hedge against the risk of default at the time.

Faced with a collapsing stock market and bond market, Credit Suisse executives decided to take the same action as last fall — to buy back bonds.

Immediately after that, the Swiss Central Bank and the Swiss Financial Market Supervisory Authority (FINMA), which are headquartered a few hundred meters away, reassured investors. Credit Suisse's current situation is in line with the requirements and will provide liquidity support to Credit Suisse.

At 1:45 a.m. on Thursday, Credit Suisse announced that it would borrow 54 billion US dollars from the Swiss central bank and buy back the debt.

Affected by this news, Credit Suisse's European stock once soared 40% after opening the market on Thursday, reaching a record high.

Credit Suisse, which experienced a sharp fall and rise, is safe for the time being. The “lifesaver” provided by the Swiss central bank underpins the bonds and stopped the crazy sell-off. Credit Suisse executives sent a message to shareholders and regulators:

This is only about confidence. We have the capital, and now we need to wait for the market to calm down.

Behind the surface of calm, the crisis has spread, and Credit Suisse is no longer able to support it. Customers in Asia, Europe, Switzerland, and the Middle East are demanding that they withdraw cash or transfer their holdings.

In just one day, billions of dollars were taken out.

Three feet of freezing Credit Suisse isn't a day's cold. In recent years, Credit Suisse has been mired in a series of scandals and turmoil, including fund bursting, performance plummeting, and even money laundering for drug dealers.

Analysts said these events were caused by underlying issues. As far as Credit Suisse is concerned, there is a huge credit crisis. Even with support from the Swiss Central Bank, concerns about the bank could be fatal.

The portfolio manager of XAIA Investment GmbH, Jochen Felsenheimer, who manages 1.4 billion euros of assets, points out that in this case, the bank may go out of business even though there are no significant losses on the balance sheet:

It's a self-fulfilling prophecy. If everyone thinks it's going to go out of business, then it will eventually go out of business.

On Thursday, Credit Suisse's 1-year CDS remained high at 3,468 basis points, indicating that investors still have doubts about it and do not believe the central bank's assurances.

The fate of closing the door has already been written

On the other side, in addition to publicly expressing support and reassuring the public, the Swiss Ministry of Finance, the central bank, and the three financial institutions of FINMA began urgent discussions on ways to resolve the crisis once and for all, from Wednesday to Thursday, including divesting the bank's Swiss division and merging with larger rival UBS.

Among them, Credit Suisse's fate was predetermined as early as Thursday. As it turns out, the Swiss central bank and FINMA provided loans to buy time to ensure a smooth merger, not to save Credit Suisse.

While providing aid, they also conveyed another message to Credit Suisse:

You have to merge with UBS; that's no choice.

However, for UBS, buying Credit Suisse is like swallowing a big, toxic piece of cake. It is both a once-in-a-lifetime opportunity and a risk at the same time.

UBS stated:

The risk could spread all over the world, and it would be a disaster for the financial system. When the conditions are right, we can help.

“Como — Lake Geneva” negotiations begin

At this point, both parties realized that the merger was inevitable. They both hired transaction advisors, and negotiations began.

Credit Suisse has long been served by investment bank Centerview, which is headed by Blair Effron.

J.P. Morgan advises the UBS management team, while Morgan Stanley advises the UBS board of directors.

The acquirer gave each bank a code name associated with the tree: Credit Suisse is cedar and UBS is elm. Credit Suisse is named after Como itself, while UBS is named after Lake Geneva.

It is worth mentioning that throughout the process, there was almost no direct contact between Credit Suisse and UBS, and the headquarters of UBS and Credit Suisse were only 300 meters away. Most of the interactions are with regulators through Swiss government intermediaries or Zoom.

The arrangement angered Credit Suisse employees, who were unaware of the price and terms of the purchase.

By Thursday, the situation at the time was clear. The Swiss government would do whatever it takes to push for a merger before Monday morning to protect the interests of Switzerland and the wider global banks.

UBS also kept silent. Executives made it clear that the company would only help competitors if the price was low.

Swiss Finance Minister Keller Sutter was a key figure throughout the negotiations, including coordination with foreign officials and regulators in the US and Europe.

Sutter is under intense pressure from regulators around the world, which have been demanding faster and more decisive action to stop the panic from spreading in the market. US Treasury Secretary Janet Yellen has had many conversations with Keller Sutter.

Over time, under heavy pressure, the three major Swiss institutions began to become more aggressive, forcibly advancing the transaction process despite strong opposition from Credit Suisse.

The time came Friday night, and UBS was exploring the possibility of buying all or part of Credit Suisse, at the urging of Swiss regulators.

Within three days of the crisis, Switzerland lost 35 billion Swiss francs in customer deposits, and international banks from BNP Paribas to HSBC cut ties with it.

Swiss regulators have come to the conclusion that Credit Suisse may not be able to open its doors next Monday.

Wall Street “vultures” are on the move

Halfway through the deal, another bidder popped out: BlackRock founder Larry Fink.

Larry Fink rallied his core circle on Thursday and repeated the phrase: “To participate in the game, you have to be involved.”

During the financial crisis, BlackRock bought Barclays International Investment Management for $15.2 billion in 2009. After the transaction is completed, BlackRock will manage more than $2.7 trillion in assets, making it the world's largest asset management company.

Now, he's sniffed out a similar opportunity during the Credit Suisse crisis.

BlackRock's team then flew to Zurich and spent a few hours in the conference room studying various options.

On Friday, Fink also sought help from Bob Steel, vice chairman of Perella Weinberg Partners, who went to Zurich.

BlackRock is open to a variety of options, including partial acquisitions or joint acquisitions with other companies.

An insider said that the most credible alternative was proposed by BlackRock, but this is not what the Swiss government wants.

Later on Friday, BlackRock finally decided to stop the bidding process.

“Don't talk about martial arts” temporarily amends legislation

Negotiations continued throughout Saturday, with regulators around the world reluctant for the two sides to sign an agreement before that night.

Credit Suisse Chairman Axel Lehmann was frustrated by UBS's lack of communication. He decided to write a letter to UBS Chairman Colm Kelleher and the Swiss authorities. Drafted by General Counsel Markus Diethem, who joined UBS in June, the report was submitted Saturday night and included some reasons why the planned deal was not acceptable.

This includes “significant adverse change” clauses relating to soaring spreads on credit default swaps.

In this letter, Lehmann moved out as a major shareholder in the Middle East. He pointed out that the largest shareholder of Credit Suisse is Saudi Arabia and the second largest shareholder is Qatar, and he expressed “extreme unease” about the non-transparency of the transaction. They asked to see a fair price and vote on the deal.

The most critical moment came. On Saturday night, Finance Minister Keller Sutter called Credit Suisse outside a restaurant and said that UBS proposed to buy Credit Suisse for up to 1 billion US dollars, at a price of about 0.25 Swiss francs/share, far below the closing price of CHF 1.86 on Friday.

On Sunday morning, when UBS's initial offer came to fruition, Credit Suisse was outraged. The offer was simply insulting.

Subsequently, the Swiss government notified Credit Suisse that it would urgently amend the legislation to allow the parties to the transaction to bypass shareholders' voting decisions and obtain authorization. This move caused the Swiss government to lose credibility.

Credit Suisse was outraged and refused to sign, and Middle Eastern shareholders were also annoyed.

A person close to one of the three major shareholders said that Europe made fun of the Saudi dictatorship and then revised legislation over the weekend. What's the difference between Switzerland and Saudi Arabia now?

An agreement under heavy pressure was forced to be reached

The countdown bell is getting closer and the two sides must reach an agreement before the end of Sunday.

Switzerland's three major institutions began putting heavy pressure on both sides and threatening to remove Credit Suisse's board of directors if they did not sign an agreement.

On the other hand, UBS obtained a loan to raise the price to $3.25 billion. But in return, the Swiss central bank will provide UBS with 100 billion Swiss francs in liquidity aid, and the government will guarantee 9 billion Swiss francs for possible losses to assets purchased by UBS.

UBS said that the final terms are still very favorable to UBS; this is an irresistible deal.

Credit Suisse, on the other hand, was outraged, saying that these clauses were unacceptable and that the government completely ignored corporate governance and shareholders' rights.

However, even when the final decision was made, the two sides hardly met face to face.

To make the deal relatively easier for Swiss citizens and Credit Suisse shareholders, the Swiss government decided to write down Credit Suisse's 16 billion Swiss francs AT1 bond to zero.

This not only meant the biggest write-down since the AT1 bond market was founded, but it also shook the rules the market had always followed.

Although these measures are meant to cover losses when the institution is in trouble, generally these measures are not triggered if shareholders receive capital in the acquisition.

However, the Swiss authorities ignored the normal order of priorities, and AT1 bonds were cleared overnight.

A banker advising on the acquisition said that AT1 holders were sacrificed in this deal, so that the Ministry of Finance could save some of their face when it rejected the majority international shareholders' votes.

The details were settled so quickly that UBS CEO Ralph Hamers didn't even know how to answer analysts' questions about Credit Suisse's debt handling in a speech later on the Sunday after the news was announced.

Credit Suisse's board of directors carefully studied the details of the final proposal and notified the Swiss authorities to accept UBS's offer of $3.25 billion after quick negotiations with advisors.

People familiar with the matter said that when Keller Sutter was told that the deal would indeed be completed before the opening of the Asian market, he took a long sigh of relief, easing the tension between Switzerland and the global financial system.

At this point, Credit Suisse has sadly left the market for 100 years, and the aftermath of how to handle bonds continues.

The dust settles

Subsequently, UBS and Credit Suisse hurriedly held a press conference in Bern, Switzerland, and joined the Swiss authorities to show a historic deal.

In her speech, Keller Sutter said that the collapse of Credit Suisse will cause huge damage to the Swiss financial industry and bring risks to UBS and other banks. The bankruptcy of a globally systemically important bank will cause irreparable economic turmoil in Switzerland and the world.

Next to her, Credit Suisse Chairman Lehmann was asked, who is responsible for this crisis?

Lehmann responded helplessly, saying it should be Twitter. Since 2021, Credit Suisse has never left the headlines. Last fall, we set off a storm on social media. This storm had a huge impact and brought about many changes.

UBS Chairman Colm Kelleher said bluntly that this is a historic day. This acquisition is very attractive to UBS shareholders, but let's be clear that as far as Credit Suisse is concerned, this is an emergency rescue.

Editor/Jeffrey