UBS takes over Credit Suisse

Moves by authorities to avert a global banking crisis appeared to have lifted market confidence on Monday as investors welcomed emergency dollar liquidity from top central banks and a historic Swiss-backed acquisition of troubled Credit Suisse by UBS Group.

In a package orchestrated by Swiss regulators on Sunday, UBS Group AG will pay 3 billion Swiss francs (US$3.23 billion) for 167-year-old Credit Suisse Group AG and assume up to US$5.4 billion in losses.

Major central banks, faced with the risk of a fast-moving loss of confidence in the financial system, also scrambled on Sunday to bolster the flow of cash around the world with a series of coordinated currency swaps to ensure banks have the dollars needed to operate.

The Swiss banking marriage is backed by a massive government guarantee, helping prevent what would have been one of the largest banking collapses since the fall of Lehman Brothers in 2008.

Financial markets staged a modest relief rally in Asia on Monday but are wary about a range of risks including contagion, the fragile state of US regional banks, and moral hazard.

"Policy makers will be hoping that the weekend's UBS buyout of troubled Credit Suisse will draw a line under recent market stresses," said Brian Martin, ANZ head of G3 economics in London.

Central banks were already facing the conundrum of how much is enough? in the face of resilient labour markets, given the lags with which their policy decisions affect economies. They now have a new conundrum, 'how much is too much?' for financial stability?

Pressure on UBS helped seal Sunday's deal.

"It's a historic day in Switzerland, and a day frankly, we hoped, would not come," UBS Chairman Colm Kelleher told analysts on a conference call. "I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders," Kelleher said.

UBS CEO Ralph Hamers said there were still many details to be worked through.

"I know that there must be still questions that we have not been able to answer," he said. "And I understand that and I even want to apologize for it."

In a global response not seen since the height of the pandemic, the Fed said it had joined central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity. The European Central Bank vowed to support euro zone banks with loans if needed; adding the Swiss rescue of Credit Suisse was instrumental in restoring calm.

Problems remain in the US banking sector, where bank stocks remained under pressure despite a move by several large banks to deposit US$30 billion into First Republic Bank, an institution rocked by the failures of Silicon Valley and Signature Bank.

On Sunday, First Republic saw its credit ratings downgraded deeper into junk status by S&P Global, which said the deposit infusion may not solve its liquidity problems.

US bank deposits have stabilized, with outflows slowing or stopping and in some cases reversing, a US official said on Sunday, adding the problems of Credit Suisse are unrelated to recent deposit runs on US banks and that US banks have limited exposure to Credit Suisse.

The US Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank, with the regulator seeking a potential breakup of the lender, according to people familiar with the matter.

There are also concerns about what happens next at Credit Suisse and what that means for investors and employees.

UBS chairman Kelleher told a media conference that it will wind down Credit Suisse's investment bank, which has thousands of employees worldwide. UBS said it expected annual cost savings of some US$7 billion by 2027.

The Swiss central bank said Sunday's deal includes 100 billion Swiss francs (US$108 billion) in liquidity assistance for UBS and Credit Suisse.

Credit Suisse shares had lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have undermined confidence.

Under the deal with UBS, some Credit Suisse bondholders are major losers. The Swiss regulator decided that Credit Suisse bonds with a notional value of US$17 billion will be valued at zero, angering some of the holders of the debt who thought they would be better protected than shareholders in the takeover deal announced on Sunday.

(US$1 = 0.9280 Swiss francs)

 

 

All set for Davos party

There’s a hangover happening in Davos even though the party hasn’t yet started. The World Economic Forum’s annual winter shindig in the Swiss mountain resort, which kicks off on Monday, marks a return for glitzy parties and high-minded debates following a three-year hiatus.

A record number of business leaders are set to make the trip, and the passage of commercial, private and government aircraft through Zurich’s airport suggests overall attendees are at pre-Covid-19 levels. Yet the direction for the future – and those who will lead it – is more clouded than ever.

Corporate and financial chieftains who skipped last May’s low-key Davos gathering are back. JPMorgan boss Jamie Dimon, a regular at the conference, will be joined by Wall Street leaders including David Solomon of Goldman Sachs and Morgan Stanley’s James Gorman. Chevron Chief Executive Mike Wirth and BP’s Bernard Looney will represent resurgent oil majors. All in all, the WEF expects to welcome some 2,700 leaders from 130 countries, including 370 public figures.

Yet the apparent return to business as usual only serves to highlight the changes that have taken place since the last full gathering of the Davos elite. The global pandemic and Russia’s invasion of Ukraine have added more friction to the already creaking globalised world that Davos epitomized.

Meanwhile, the political leaders responsible for shaping the new order are mostly staying at home. US President Joe Biden is not making the trip – unlike his predecessor. Though, a smattering of US Congress members are expected to come they are hardly well-known international figures. China’s most senior representative is Vice-Premier Liu He. British Prime Minister Rishi Sunak, grappling with a slowing economy and striking public sector workers, is also staying home.

A stroll down the Davos Promenade, the town’s main drag where countries and corporations temporarily take over storefronts, underscores the shift. Poland and Indonesia have a prominent presence, but other national delegations have quieter messages on display. Saudi Arabia has a few conspicuous banners touting NEOM, its futuristic economic zone. The United Arab Emirates is touting tolerance.

The cryptocurrency firms that were at previous gatherings are mostly muted, replaced by companies promoting technologies like the blockchain. The Medical Psychedelics House has been replaced by the India Inclusivity Lounge. Established technology companies like Workday, Salesforce, Cisco, Qualcomm and Meta Platforms dominate the street scene. Perhaps the most striking new tenant is Manchester United, the English Premier League club which is seeking a buyer.

The shift is reflective of a world that has become introspective and less joined-up. As big companies diversify supply chains, governments and regions are competing hard for business. Biden’s Inflation Reduction Act is dangling subsidies for American manufacturing, encouraging governors like J.B. Pritzker of Illinois to lure investment to their state. The WEF and its founder Klaus Schwab acknowledged some of this by renaming the conference “Cooperation in a Fragmented World”.

Still, those returning to Davos for the first time in three years may feel like the cocktail is a little less potent.

Courtesy: Reuters

Russia publishes an official list of states unfriendly to it

A list of foreign states that Russia considers as having committed unfriendly actions against Russia, Russian companies and citizens was published on the Russian government's website on Monday. 

The countries, international organizations and territories considered unfriendly include Australia, Albania, Andorra, United Kingdom, including Jersey, Anguilla, British Virgin Islands, Gibraltar, the member states of the European Union, Iceland, Canada, Liechtenstein, Micronesia, Monaco, New Zealand, Norway, Republic of Korea, San Marino, North Macedonia, Singapore, USA, Taiwan, Ukraine, Montenegro, Switzerland, Japan." Russia lists Taiwan as being part of China.

A complimentary item of legislation from Sunday states that Russian citizens and companies must apply for a special permit to deal with unfriendly foreign entities. 

The list was created as part of a series of laws to follow a Saturday decree by Russian President Vladamir Putin for temporary economic measures to ensure the financial stability of the Russian Federation.

Part of the measures the list was to enforce was the law that allows Russian citizens, companies and state bodies to pay back foreign creditors in rubles. 

While Israel has condemned Russia for its invasion of Ukraine, it was not included on the list. Israel has taken on a mediation role during the conflict, seeing Prime Minister Naftali Bennett flying to Moscow on Saturday to speak with Putin. 

Israel made efforts to derail Pakistan nuclear program

Reportedly, Israeli intelligence agency, Mossad is suspected of detonating bombs and issuing threats to German and Swiss companies in the 1980s that helped Pakistan in its nascent nuclear weapons program.

Lately, the prominent Swiss daily Neue Zürcher Zeitung (NZZ) reported on the findings. According to the paper, “The suspicion that the Mossad might be behind the attacks and threats soon arose. For Israel, the prospect that Pakistan, for the first time, could become an Islamic state with an atomic bomb posed an existential threat.”

The paper reported that Pakistan and Iran worked closely together in the 1980s on the construction of nuclear weapons devices. According to the NZZ, the intensive work of companies from Germany and Switzerland in aiding Iran’s nuclear program “has been relatively well researched.”

The paper quoted the Swiss historian Adrian Hänni who said the Mossad was likely involved in the bomb attacks of Swiss and German companies added, there was no “smoking gun” to prove the Mossad carried out the attacks.

The Organization for the Non-Proliferation of Nuclear Weapons in South Asia, a previously unknown entity, claimed credit for the explosions in Switzerland and Germany.

The NZZ reports on the role of the late Pakistani nuclear scientist, Abdul Qadeer Khan, the father of Pakistan’s atomic weapons program. He crisscrossed Europe during the 1980s to secure technology and blueprints from Western institutions and companies. The paper wrote that Khan met in a Zurich hotel with a delegation of Iran’s Organization for Atomic Energy in 1987.  The Iranian delegation was led by the engineer Masud Naraghi, the chief of Iran’s nuclear energy commission.

Two German engineers, Gotthard Lerch and Heinz Mebus, along with Naraghi, who earned his PhD in the USA, met with Khan’s group in Switzerland. Additional meetings took place in Dubai.

With the fast-moving efforts by Pakistan to jumpstart its nuclear weapons program, the US government sought, without success, to get the German and Swiss governments to crack down on companies in their countries that were aiding Pakistan. Suspected Mossad agents allegedly took action in Switzerland and Germany against the companies and engineers involved in aiding Pakistan.

According to the NZZ, “A few months after the unsuccessful intervention of the US State Department in Bonn and Bern, unknown perpetrators carried out explosive attacks on three of these companies: on February 20, 1981 on the house of a leading employee of Cora Engineering Chur; on May 18, 1981  on the factory building of the Wälischmiller company in Markdorf;  and finally, on November 06, 1981, on the engineering office of Heinz Mebus in Erlangen. All three attacks resulted in only property damage, only Mebus's dog was killed.”

The paper highlighted, “The explosives attacks were accompanied by several phone calls in which strangers threatened other delivery companies in English or broken German. Sometimes the caller would order the threats to be taped. ‘The attack that we carried out against the Wälischmiller company could happen to you too’ - this is how the Leybold-Heraeus administration office was intimidated.

Siegfried Schertler, the owner of VAT at the time, and his head salesman Tinner were called several times on their private lines. Schertler also reported to the Swiss Federal Police that the Israeli secret service had contacted him. This emerges from the investigation files, which the NZZ was able to see for the first time.”

Schertler said an employee of the Israeli embassy in Germany named David, contacted the VAT executive. The company head said that David urged him to stop ‘these businesses’ regarding nuclear weapons and switch to the textile business.

Swiss and German companies derived significant profits from their business with the Khan nuclear weapons network. The NZZ reported “Many of these suppliers, mainly from Germany and Switzerland, soon entered into business worth millions with Pakistan. Leybold-Heraeus, Wälischmiller, Cora Engineering Chur, Vakuum-Apparate-Technik (VAT, with the chief buyer Friedrich Tinner) or the Buchs metal works, to name a few. They benefited from an important circumstance. The German and Swiss authorities interpreted their dual-use provisions very generously. Most of the components that are required for uranium enrichment, for example, high-precision vacuum valves, are primarily used for civil purposes.”

The NZZ reported that recently the National Security Archive in Washington published diplomatic correspondence from the US State Department from Bonn and Bern in 1980.

“This shows how the US resented the two countries' casual handling of the delicate deliveries to Pakistan. In a note from an employee, Bern's behavior was described as a ‘hands-off approach’ - the local authorities were accordingly accused of turning a blind eye. In the now released dispatches, which were previously classified as secret, those companies are listed for the first time that the US has accused of supporting the Pakistani nuclear weapons program with their deliveries. The list included around half a dozen companies each from Germany and Switzerland.”