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⚠️ Insider time: Disaster and false rescue
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👉 Bank monster UBS Group AG has agreed to buy CS through government mediation to try to avoid a crisis of confidence. The deal involves UBS paying 3 billion francs for its rival, subject to government guarantees and tight liquidity controls.
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Last week, the intervention of the SNB did not stop the market drama, which threatened the flight of counterparties with potential consequences for the entire banking industry. The price of Credit Suisse Group (NYSE: CS) decreased by 98% compared to the peak value of $74 (April 2007).
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Under the deal, UBS Group AG bought Credit Suisse at a price much lower than the closing price (roughly $2) last Friday. This means that the banking catastrophe is developing and even weak investor optimism is practically useless.
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The SNB now offers UBS an additional liquidity of 100 billion francs, while the government provides a guarantee of ₣9 billion to cover potential losses from assets that UBS takes control of.
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The crisis plan aims to address customer churn and a massive fall in Credit Suisse shares and bonds over the past week following the collapse of small U.S. lenders. The government's loss guarantee was necessary because there was little time to conduct a full analysis, and Credit Suisse has hard-to-value assets on its balance sheet that UBS plans to liquidate.
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Financial regulator Finma said Credit Suisse bonds worth about 16 billion francs would depreciate to ensure private investors help offset the costs. The first 5 billion francs of losses are incurred by UBS, and the next 9 billion francs by the federal government.
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Yellen and Powell were forced to support the deal in a joint statement, and Lagarde promised in a separate statement to provide additional liquidity if necessary.
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Let's see what happens.
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Profits to y’all!