瑞士银行与瑞士信贷合并:Helvetia的礼物

IF 1.4 Q4 BUSINESS, FINANCE
Pascal Böni, Tim A. Kroencke, Florin P. Vasvari
{"title":"瑞士银行与瑞士信贷合并:Helvetia的礼物","authors":"Pascal Böni,&nbsp;Tim A. Kroencke,&nbsp;Florin P. Vasvari","doi":"10.1111/jacf.12674","DOIUrl":null,"url":null,"abstract":"<p>Pietro Veronesi and Luigi Zingales provide an account of the staggering costs of extensive government intervention in the US financial sector during the 2008 global financial crisis.1 To reduce such costs in the future, extensive regulation has been introduced to make banks more resilient, and to protect taxpayers and private investors from bearing bailout costs.2 But a key question remains: Is the post-2008 regulatory framework effective? In this paper, we analyze the UBS-Credit Suisse merger to shed light on this question.</p><p>On the evening of Sunday, March 19, 2023, the Swiss Federal Council, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority (Finma) jointly announced the orchestrated bailout-merger of Credit Suisse (CS) by its domestic banking rival UBS Group AG (UBS), marking the end of 167 years of proud Swiss banking history.3 The demise of CS shook faith in a stable Swiss Confederation, often affectionately called “Helvetia”.4</p><p>The bailout-merger, which aimed to restore confidence in the Swiss financial system, deviated significantly from standard bank resolution procedures. It lacked competitive bidding and circumvented a typical bank resolution or purchase and assumption (P&amp;A) transaction, where the acquiring bank purchases the failed bank's assets and assumes its deposits. Instead, the Swiss government forced the implementation of a government emergency rescue deal, which consisted of a complete emergency merger share-deal between UBS and CS. This emergency rescue deal also included massive state liquidity guarantees in the amount of 214 billion (bn) US dollars (USD) and, additionally, a substantial loss guarantee totaling 9.63 bn USD to cover potential losses incurred on the realization of certain CS assets. We argue that the exclusion of competitive bidding, imposed by the government, and the relatively late intervention of the regulator have led to an unexpectedly favorable deal for the acquirer, UBS. We show that significant wealth transfers to specific asset owners have taken place due to the merger. While some of these wealth transfers were offset by redistributions from CS shareholders and AT1 bondholders, the ones who are supposed to bear the burden of bankruptcy, the overall wealth effect cannot be solely explained by the participating firms’ abnormal returns on securities. We provide insights into the merger-induced value creation and destruction and the redistribution of wealth amongst stakeholders and taxpayers. More specifically, we show that Switzerland's cost of debt increased substantially as a consequence of the state-orchestrated merger between UBS and CS. We conclude that an economically meaningful part of the costs is borne exogenously, that is, primarily by the taxpayer. This is what we call the “Helvetia's gift”, which suggests that the current regulatory framework does not actually protect the public from bad behavior by financial actors as much as one might hope.</p><p>To reach this conclusion, we undertake three steps. First, we quantify the wealth effects for the <i>stockholders and bondholders</i> of UBS (acquiror) and CS (target). Second, we compare our empirical findings with insights from extant academic literature on competitive bank mergers. Third, we assess the anticipated refinancing cost of the massive liquidity and loss guarantees granted by the Swiss government.</p><p>We estimate <i>stockholder wealth effects</i> using high-frequency intraday stock data over the period from Friday, March 17 (5:30 p.m.) to Tuesday, March 21 (5:30 p.m.). The bailout-merger resulted in a 2-day cumulative abnormal return (CAR) of 7.95% for UBS shareholders and a −55% CAR for CS shareholders, while other European banks show no significant abnormal stock returns.5 In absolute values, relative to their market capitalizations as of March 17, 2023, these abnormal returns translate to a wealth increase of 5.14 bn USD for UBS stockholders, and a wealth decrease of 4.35 bn USD for CS stockholders,6 with a disproportionate negative impact on small equity retail investors in CS, as opposed to large institutional investors.7 Therefore, we observe a positive combined stockholder wealth effect of approximately 0.79 bn USD.</p><p>Next, we examine <i>bondholder wealth effects</i> resulting from the merger-bailout. The deal involved the write-down of AT1 bonds with a nominal value of 17 bn USD and an approximate market value of 3.9 bn USD.8 While the AT1-write-down and associated numbers have received extensive media coverage, less attention has been given to the impact of the merger on CS's and UBS's holders of straight bonds even though they had significantly higher value compared to AT1 bonds. Since bond markets are generally less liquid,9 we first analyze intraday high-frequency data from credit default swap (CDS) spreads. Price information derived from CDS spreads is based on informed price discovery by traders in a liquid market known for accurately trading credit risk.10 Our findings reveal economically substantial and statistically significant cumulative abnormal CDS spread changes (CAC) of −755 basis points (bp) for CS over the 2-day horizon. In contrast, UBS's spread decreases by an insignificant 4 bp during the same period. The large abnormal CDS spread changes indicate that CS bondholders experienced significant abnormal returns since CDS spreads are sensitive to credit events and are closely related to yield spreads.11</p><p>To estimate bondholder wealth effects more accurately in USD, we utilize daily bond data for 57 CS bonds, which account for approximately 80% of CS's long-term debt. The 2-day CAR for the (observable) value-weighted CS bond portfolio amounts to an impressive +34.74%. In absolute values, relative to the market value of the target's bond portfolio as of March 17, 2023, these abnormal returns correspond to a significant and economically important value-weighted bondholder wealth increase of 22.65 bn USD. At the same time, we find no wealth increase for UBS bondholders. Accounting for the net AT1-bond wealth changes (−3.9 bn USD), these findings suggest a total wealth increase of 18.75 bn USD for CS's bondholders.</p><p>Therefore, considering the calculated total stockholder and bondholder wealth effects outlined above, the combined wealth increase amounts to 19.5 bn USD (0.79 bn USD net stockholder effects plus 18.75 bn USD net bondholder effects). This can be interpreted as the net market value created by the state orchestrated bailout-merger deal. The entire net wealth effect appears to be exogenous, not attributable to any wealth transfers from bondholders to stockholders within or across the merging banks.</p><p>Could CS have been rescued at a lower cost? We posit that allowing for competitive bidding for CS's equity would have likely resulted in a lower price for its rescue. While it is challenging to establish this quantitatively, we draw on comprehensive academic research on competitive merger bids to support this contention. First, prior literature finds negative stockholder abnormal returns for non-failed bank acquisitions12 and modest positive CARs for failed-bank acquisitions.13 These modest CARs are primarily attributed to bidder restrictions.14 In competitive bidding scenarios, the winning bidder often overpays, leading to more favorable terms of the target's shareholders. Therefore, drawing on the winner's curse hypothesis of Richard Roll15 and existing literature, we argue that bidder restrictions likely resulted in a wealth transfer from CS to UBS stockholders.</p><p>Second, the literature suggests that the wealth transfer to CS bondholders may be attributed to a coinsurance effect.16 With the merger announcement, the market anticipated a substantial decrease in CS's leverage and probability of default. It is evident that an unexpected decrease in firm leverage can lead to wealth transfers from stockholders to bondholders.17 This coinsurance effect is particularly pronounced when the target's rating is lower than the acquirer's or when the acquisition is expected to reduce the target's risk.18 Both conditions were present in this merger, which supports the existence of large abnormal returns. However, the significant wealth gain of almost 18.75 bn USD for CS bondholders, combined with no change in the value of UBS bonds, suggests that this mechanism alone cannot fully explain the observed effects.</p><p>A third additional factor at play may be the “too-big-to-fail” channel whereby the new bank likely benefits from reinforced gains associated with its “too-big-to-fail” status.19 An important element of this takeover was the loss protection agreement signed by UBS with the Federal Department of Finance (FDF). This agreement covered a specific portfolio of Credit Suisse assets, which corresponded to approximately 3% of the combined assets of the merged bank. UBS could draw the guarantee for any realized losses exceeding CHF 5 bn from the federal government (up to a maximum of CHF 14 bn). Only losses realized could be covered by this guarantee. In support for this channel, we find that the government intervention resulted in a significant jump in Switzerland's cost of debt, ultimately placing a burden on taxpayers. Consistent with the prior literature on the cost of government interventions the event caused a substantial increase in Switzerland's sovereign credit risk and, consequently, its expected cost of capital.20 Switzerland's sovereign credit risk, as proxied by its CDS spread, more than doubled. The present value of the associated expected increase in capital costs, amounts to approximately 5.8–7.2 bn USD.</p><p>We thus conclude that the substantial combined net wealth increase of 19.5 bn USD, unexplained by abnormal security returns, ultimately falls on the shoulders of taxpayers. Both, the loss protection agreement mentioned above but also the observed jump in Switzerland's cost of debt do support this interpretation. A poorly managed bank is kept afloat, and an incentive for large banks to take excessive risks and lower their efforts to manage risks is heightened. While these costs may be outweighed by benefits such reducing the likelihood of a financial panic, achieving these benefits at a lower cost should have been the primary goal. This could have been accomplished through the avoidance of bidder restrictions and effective bank oversight that utilizes existing market signals in a timely manner to facilitate an orderly bank resolution.</p><p>The subsequent sections of the paper proceed as follows. Section 2 provides a description of the events leading up to the UBS/CS bailout-merger, Section 3 outlines the data and event study methodology used, Section 4 presents the empirical results along with robustness tests, Section 5 discusses the findings, and Section 6 concludes the paper.</p><p>To facilitate the bailout-merger, the Federal Council enacted emergency measures based on articles 184 and 185 of the Federal Constitution. These measures included the creation of a legal framework allowing the national bank to provide additional liquidity assistance beyond standard emergency liquidity assistance. The Federal Council also provided a default guarantee to the SNB. The Finance Delegation, representing the federal government and driven by the Federal Council), granted a 9 bn Swiss franc guarantee to cover potential losses arising from specific assets UBS acquired as part of the transaction.35 UBS was responsible for the first CHF 5 bn of any realized losses associated with winding down inherited Credit Suisse assets that were deemed non-core or incompatible with its risk profile. If losses exceed this amount, the federal government has committed to cover up to a maximum of CHF 9 bn. This Swiss federal guarantee obliged UBS to manage the assets in such a way that losses are minimized (and realization proceeds are maximized) and the federal government received broad information and audit rights in order to verify this. Furthermore, CS and UBS received a total of 200 bn Swiss francs in additional liquidity assistance loans from the Swiss National Bank, comprising a 100 bn Swiss franc loan with privileged creditor status in bankruptcy and a loan of up to 100 bn Swiss francs backed by a federal default guarantee.36 As of the end of May 2023, Credit Suisse had repaid its outstanding liquidity amounts received in full to the Swiss National Bank.</p><p>Almost a month later, on May 16, 2023, UBS disclosed potential costs and benefits amounting to tens of bns of dollars from its takeover of CS, highlighting the significant stakes involved in completing the rescue of its struggling Swiss rival. UBS estimated a negative impact of $13 bn from fair value adjustments and $4 bn in potential litigation and regulatory costs resulting from outflows. Additionally, the switch in accounting standards brought the total hit to $28.3 bn. However, UBS expected to offset these costs with a write-down of $17.1 bn from Credit Suisse's AT1 bonds as well as taking over CS for a fraction of its book value, resulting in a one-off gain of $34.8 bn from the acquisition.</p><p>While the disclosure of the accounting gain was seen as less favorable than expected, it did offer UBS a cushion to absorb losses and costs associated with the merger and was likely to contribute to a boost in UBS's future profits if the transaction proceeded as planned. The numbers underscored CS's frailty and the integration challenges that UBS faced. UBS has imposed several restrictions on Credit Suisse during the takeover, including limits on lending, spending, and contract sizes. These measures were seen as reasonable given the lapses in CS's risk controls, although they could cause certain clients to leave the bank.</p><p>On June 12, 2023, UBS successfully finalized its emergency acquisition of CS, thereby establishing a colossal Swiss banking institution with a balance sheet of $1.6 trillion and a robust foothold in wealth management. In tandem with this announcement, UBS revealed that CS will operate as a separate subsidiary. Additionally, CS's bankers will be prohibited from acquiring new clients from high-risk countries or investing in complex financial products. These preventative measures, formulated by UBS's compliance department, aimed to mitigate potential risks associated with the transaction.</p><p>We show that the UBS-CS-merger substantially impacted the wealth of the participating firms’ stockholders and bondholders. It created a net value of 19.5 bn USD, distributed to UBS stockholders (5.1 bn USD), CS stockholders (−4.4 bn USD), and CS bondholders (18.8 bn USD). The combined wealth effect cannot be explained by the participating firms’ abnormal returns on securities. While the Swiss government claims that the bailout-merger is a private transaction that has the potential to come at zero cost to the taxpayer, we find that there have likely been large transfers of wealth from taxpayers to UBS/CS stakeholders.</p><p>We identify various channels that may have created this surprisingly large, combined wealth effect. First, we argue that UBS stockholders have profited from bidding restrictions imposed by the government. These bidding restrictions may be the result of political ties between the government and top-level representatives of UBS and CS, who engaged in meetings to discuss the potential merger and other contingency plans as early as in December 2022. Second, we believe that CS bondholders profited from substantial coinsurance effects. Third, the “too-big-to-fail” channel, combined with a material loss protection agreement which covered a specific portfolio of CS assets (corresponding to approximately 3% of the combined assets of the merged bank) may have contributed to the combined wealth effect. Finally, and importantly, we infer from our analysis that the government intervention likely came at the cost of a significant jump in Switzerland's sovereign credit risk and thus an increase in its expected cost of debt, implying the risk of a substantial taxpayer wealth transfer in the magnitude of approximately six to seven bn USD.</p><p>It seems that the reforms adopted after the 2007–2009 crisis still fall short in resolving issues with systemically important bank institutions. Staggering costs of extensive government intervention in a banking crisis, as described by Veronesi and Zingales for the US financial sector during the 2008 global financial crisis, seem to be inherent in the banking system.70 As in the GFC, and described in more detail by Anjan Thakor in 2015,71 taxpayers and private investors still appear to bear the bailout costs for failing banks. Authorities act late, apply corrections only after the risks of failure have become severe. Both the failure of bank executives and the deficit of supervisors to anticipate necessary tasks in case of an intervention (such as avoiding unnecessary restrictions on bidder participation) have created costly inefficiencies in the bailout process, including substantial wealth transfers from taxpayers to the banking sector. Restoring confidence to the financial system should have been achieved at a lower cost.</p>","PeriodicalId":46789,"journal":{"name":"Journal of Applied Corporate Finance","volume":"37 2","pages":"104-121"},"PeriodicalIF":1.4000,"publicationDate":"2025-07-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12674","citationCount":"0","resultStr":"{\"title\":\"The UBS-Credit Suisse Merger: Helvetia's Gift\",\"authors\":\"Pascal Böni,&nbsp;Tim A. Kroencke,&nbsp;Florin P. Vasvari\",\"doi\":\"10.1111/jacf.12674\",\"DOIUrl\":null,\"url\":null,\"abstract\":\"<p>Pietro Veronesi and Luigi Zingales provide an account of the staggering costs of extensive government intervention in the US financial sector during the 2008 global financial crisis.1 To reduce such costs in the future, extensive regulation has been introduced to make banks more resilient, and to protect taxpayers and private investors from bearing bailout costs.2 But a key question remains: Is the post-2008 regulatory framework effective? In this paper, we analyze the UBS-Credit Suisse merger to shed light on this question.</p><p>On the evening of Sunday, March 19, 2023, the Swiss Federal Council, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority (Finma) jointly announced the orchestrated bailout-merger of Credit Suisse (CS) by its domestic banking rival UBS Group AG (UBS), marking the end of 167 years of proud Swiss banking history.3 The demise of CS shook faith in a stable Swiss Confederation, often affectionately called “Helvetia”.4</p><p>The bailout-merger, which aimed to restore confidence in the Swiss financial system, deviated significantly from standard bank resolution procedures. It lacked competitive bidding and circumvented a typical bank resolution or purchase and assumption (P&amp;A) transaction, where the acquiring bank purchases the failed bank's assets and assumes its deposits. Instead, the Swiss government forced the implementation of a government emergency rescue deal, which consisted of a complete emergency merger share-deal between UBS and CS. This emergency rescue deal also included massive state liquidity guarantees in the amount of 214 billion (bn) US dollars (USD) and, additionally, a substantial loss guarantee totaling 9.63 bn USD to cover potential losses incurred on the realization of certain CS assets. We argue that the exclusion of competitive bidding, imposed by the government, and the relatively late intervention of the regulator have led to an unexpectedly favorable deal for the acquirer, UBS. We show that significant wealth transfers to specific asset owners have taken place due to the merger. While some of these wealth transfers were offset by redistributions from CS shareholders and AT1 bondholders, the ones who are supposed to bear the burden of bankruptcy, the overall wealth effect cannot be solely explained by the participating firms’ abnormal returns on securities. We provide insights into the merger-induced value creation and destruction and the redistribution of wealth amongst stakeholders and taxpayers. More specifically, we show that Switzerland's cost of debt increased substantially as a consequence of the state-orchestrated merger between UBS and CS. We conclude that an economically meaningful part of the costs is borne exogenously, that is, primarily by the taxpayer. This is what we call the “Helvetia's gift”, which suggests that the current regulatory framework does not actually protect the public from bad behavior by financial actors as much as one might hope.</p><p>To reach this conclusion, we undertake three steps. First, we quantify the wealth effects for the <i>stockholders and bondholders</i> of UBS (acquiror) and CS (target). Second, we compare our empirical findings with insights from extant academic literature on competitive bank mergers. Third, we assess the anticipated refinancing cost of the massive liquidity and loss guarantees granted by the Swiss government.</p><p>We estimate <i>stockholder wealth effects</i> using high-frequency intraday stock data over the period from Friday, March 17 (5:30 p.m.) to Tuesday, March 21 (5:30 p.m.). The bailout-merger resulted in a 2-day cumulative abnormal return (CAR) of 7.95% for UBS shareholders and a −55% CAR for CS shareholders, while other European banks show no significant abnormal stock returns.5 In absolute values, relative to their market capitalizations as of March 17, 2023, these abnormal returns translate to a wealth increase of 5.14 bn USD for UBS stockholders, and a wealth decrease of 4.35 bn USD for CS stockholders,6 with a disproportionate negative impact on small equity retail investors in CS, as opposed to large institutional investors.7 Therefore, we observe a positive combined stockholder wealth effect of approximately 0.79 bn USD.</p><p>Next, we examine <i>bondholder wealth effects</i> resulting from the merger-bailout. The deal involved the write-down of AT1 bonds with a nominal value of 17 bn USD and an approximate market value of 3.9 bn USD.8 While the AT1-write-down and associated numbers have received extensive media coverage, less attention has been given to the impact of the merger on CS's and UBS's holders of straight bonds even though they had significantly higher value compared to AT1 bonds. Since bond markets are generally less liquid,9 we first analyze intraday high-frequency data from credit default swap (CDS) spreads. Price information derived from CDS spreads is based on informed price discovery by traders in a liquid market known for accurately trading credit risk.10 Our findings reveal economically substantial and statistically significant cumulative abnormal CDS spread changes (CAC) of −755 basis points (bp) for CS over the 2-day horizon. In contrast, UBS's spread decreases by an insignificant 4 bp during the same period. The large abnormal CDS spread changes indicate that CS bondholders experienced significant abnormal returns since CDS spreads are sensitive to credit events and are closely related to yield spreads.11</p><p>To estimate bondholder wealth effects more accurately in USD, we utilize daily bond data for 57 CS bonds, which account for approximately 80% of CS's long-term debt. The 2-day CAR for the (observable) value-weighted CS bond portfolio amounts to an impressive +34.74%. In absolute values, relative to the market value of the target's bond portfolio as of March 17, 2023, these abnormal returns correspond to a significant and economically important value-weighted bondholder wealth increase of 22.65 bn USD. At the same time, we find no wealth increase for UBS bondholders. Accounting for the net AT1-bond wealth changes (−3.9 bn USD), these findings suggest a total wealth increase of 18.75 bn USD for CS's bondholders.</p><p>Therefore, considering the calculated total stockholder and bondholder wealth effects outlined above, the combined wealth increase amounts to 19.5 bn USD (0.79 bn USD net stockholder effects plus 18.75 bn USD net bondholder effects). This can be interpreted as the net market value created by the state orchestrated bailout-merger deal. The entire net wealth effect appears to be exogenous, not attributable to any wealth transfers from bondholders to stockholders within or across the merging banks.</p><p>Could CS have been rescued at a lower cost? We posit that allowing for competitive bidding for CS's equity would have likely resulted in a lower price for its rescue. While it is challenging to establish this quantitatively, we draw on comprehensive academic research on competitive merger bids to support this contention. First, prior literature finds negative stockholder abnormal returns for non-failed bank acquisitions12 and modest positive CARs for failed-bank acquisitions.13 These modest CARs are primarily attributed to bidder restrictions.14 In competitive bidding scenarios, the winning bidder often overpays, leading to more favorable terms of the target's shareholders. Therefore, drawing on the winner's curse hypothesis of Richard Roll15 and existing literature, we argue that bidder restrictions likely resulted in a wealth transfer from CS to UBS stockholders.</p><p>Second, the literature suggests that the wealth transfer to CS bondholders may be attributed to a coinsurance effect.16 With the merger announcement, the market anticipated a substantial decrease in CS's leverage and probability of default. It is evident that an unexpected decrease in firm leverage can lead to wealth transfers from stockholders to bondholders.17 This coinsurance effect is particularly pronounced when the target's rating is lower than the acquirer's or when the acquisition is expected to reduce the target's risk.18 Both conditions were present in this merger, which supports the existence of large abnormal returns. However, the significant wealth gain of almost 18.75 bn USD for CS bondholders, combined with no change in the value of UBS bonds, suggests that this mechanism alone cannot fully explain the observed effects.</p><p>A third additional factor at play may be the “too-big-to-fail” channel whereby the new bank likely benefits from reinforced gains associated with its “too-big-to-fail” status.19 An important element of this takeover was the loss protection agreement signed by UBS with the Federal Department of Finance (FDF). This agreement covered a specific portfolio of Credit Suisse assets, which corresponded to approximately 3% of the combined assets of the merged bank. UBS could draw the guarantee for any realized losses exceeding CHF 5 bn from the federal government (up to a maximum of CHF 14 bn). Only losses realized could be covered by this guarantee. In support for this channel, we find that the government intervention resulted in a significant jump in Switzerland's cost of debt, ultimately placing a burden on taxpayers. Consistent with the prior literature on the cost of government interventions the event caused a substantial increase in Switzerland's sovereign credit risk and, consequently, its expected cost of capital.20 Switzerland's sovereign credit risk, as proxied by its CDS spread, more than doubled. The present value of the associated expected increase in capital costs, amounts to approximately 5.8–7.2 bn USD.</p><p>We thus conclude that the substantial combined net wealth increase of 19.5 bn USD, unexplained by abnormal security returns, ultimately falls on the shoulders of taxpayers. Both, the loss protection agreement mentioned above but also the observed jump in Switzerland's cost of debt do support this interpretation. A poorly managed bank is kept afloat, and an incentive for large banks to take excessive risks and lower their efforts to manage risks is heightened. While these costs may be outweighed by benefits such reducing the likelihood of a financial panic, achieving these benefits at a lower cost should have been the primary goal. This could have been accomplished through the avoidance of bidder restrictions and effective bank oversight that utilizes existing market signals in a timely manner to facilitate an orderly bank resolution.</p><p>The subsequent sections of the paper proceed as follows. Section 2 provides a description of the events leading up to the UBS/CS bailout-merger, Section 3 outlines the data and event study methodology used, Section 4 presents the empirical results along with robustness tests, Section 5 discusses the findings, and Section 6 concludes the paper.</p><p>To facilitate the bailout-merger, the Federal Council enacted emergency measures based on articles 184 and 185 of the Federal Constitution. These measures included the creation of a legal framework allowing the national bank to provide additional liquidity assistance beyond standard emergency liquidity assistance. The Federal Council also provided a default guarantee to the SNB. The Finance Delegation, representing the federal government and driven by the Federal Council), granted a 9 bn Swiss franc guarantee to cover potential losses arising from specific assets UBS acquired as part of the transaction.35 UBS was responsible for the first CHF 5 bn of any realized losses associated with winding down inherited Credit Suisse assets that were deemed non-core or incompatible with its risk profile. If losses exceed this amount, the federal government has committed to cover up to a maximum of CHF 9 bn. This Swiss federal guarantee obliged UBS to manage the assets in such a way that losses are minimized (and realization proceeds are maximized) and the federal government received broad information and audit rights in order to verify this. Furthermore, CS and UBS received a total of 200 bn Swiss francs in additional liquidity assistance loans from the Swiss National Bank, comprising a 100 bn Swiss franc loan with privileged creditor status in bankruptcy and a loan of up to 100 bn Swiss francs backed by a federal default guarantee.36 As of the end of May 2023, Credit Suisse had repaid its outstanding liquidity amounts received in full to the Swiss National Bank.</p><p>Almost a month later, on May 16, 2023, UBS disclosed potential costs and benefits amounting to tens of bns of dollars from its takeover of CS, highlighting the significant stakes involved in completing the rescue of its struggling Swiss rival. UBS estimated a negative impact of $13 bn from fair value adjustments and $4 bn in potential litigation and regulatory costs resulting from outflows. Additionally, the switch in accounting standards brought the total hit to $28.3 bn. However, UBS expected to offset these costs with a write-down of $17.1 bn from Credit Suisse's AT1 bonds as well as taking over CS for a fraction of its book value, resulting in a one-off gain of $34.8 bn from the acquisition.</p><p>While the disclosure of the accounting gain was seen as less favorable than expected, it did offer UBS a cushion to absorb losses and costs associated with the merger and was likely to contribute to a boost in UBS's future profits if the transaction proceeded as planned. The numbers underscored CS's frailty and the integration challenges that UBS faced. UBS has imposed several restrictions on Credit Suisse during the takeover, including limits on lending, spending, and contract sizes. These measures were seen as reasonable given the lapses in CS's risk controls, although they could cause certain clients to leave the bank.</p><p>On June 12, 2023, UBS successfully finalized its emergency acquisition of CS, thereby establishing a colossal Swiss banking institution with a balance sheet of $1.6 trillion and a robust foothold in wealth management. In tandem with this announcement, UBS revealed that CS will operate as a separate subsidiary. Additionally, CS's bankers will be prohibited from acquiring new clients from high-risk countries or investing in complex financial products. These preventative measures, formulated by UBS's compliance department, aimed to mitigate potential risks associated with the transaction.</p><p>We show that the UBS-CS-merger substantially impacted the wealth of the participating firms’ stockholders and bondholders. It created a net value of 19.5 bn USD, distributed to UBS stockholders (5.1 bn USD), CS stockholders (−4.4 bn USD), and CS bondholders (18.8 bn USD). The combined wealth effect cannot be explained by the participating firms’ abnormal returns on securities. While the Swiss government claims that the bailout-merger is a private transaction that has the potential to come at zero cost to the taxpayer, we find that there have likely been large transfers of wealth from taxpayers to UBS/CS stakeholders.</p><p>We identify various channels that may have created this surprisingly large, combined wealth effect. First, we argue that UBS stockholders have profited from bidding restrictions imposed by the government. These bidding restrictions may be the result of political ties between the government and top-level representatives of UBS and CS, who engaged in meetings to discuss the potential merger and other contingency plans as early as in December 2022. Second, we believe that CS bondholders profited from substantial coinsurance effects. Third, the “too-big-to-fail” channel, combined with a material loss protection agreement which covered a specific portfolio of CS assets (corresponding to approximately 3% of the combined assets of the merged bank) may have contributed to the combined wealth effect. Finally, and importantly, we infer from our analysis that the government intervention likely came at the cost of a significant jump in Switzerland's sovereign credit risk and thus an increase in its expected cost of debt, implying the risk of a substantial taxpayer wealth transfer in the magnitude of approximately six to seven bn USD.</p><p>It seems that the reforms adopted after the 2007–2009 crisis still fall short in resolving issues with systemically important bank institutions. Staggering costs of extensive government intervention in a banking crisis, as described by Veronesi and Zingales for the US financial sector during the 2008 global financial crisis, seem to be inherent in the banking system.70 As in the GFC, and described in more detail by Anjan Thakor in 2015,71 taxpayers and private investors still appear to bear the bailout costs for failing banks. Authorities act late, apply corrections only after the risks of failure have become severe. Both the failure of bank executives and the deficit of supervisors to anticipate necessary tasks in case of an intervention (such as avoiding unnecessary restrictions on bidder participation) have created costly inefficiencies in the bailout process, including substantial wealth transfers from taxpayers to the banking sector. Restoring confidence to the financial system should have been achieved at a lower cost.</p>\",\"PeriodicalId\":46789,\"journal\":{\"name\":\"Journal of Applied Corporate Finance\",\"volume\":\"37 2\",\"pages\":\"104-121\"},\"PeriodicalIF\":1.4000,\"publicationDate\":\"2025-07-06\",\"publicationTypes\":\"Journal Article\",\"fieldsOfStudy\":null,\"isOpenAccess\":false,\"openAccessPdf\":\"https://onlinelibrary.wiley.com/doi/epdf/10.1111/jacf.12674\",\"citationCount\":\"0\",\"resultStr\":null,\"platform\":\"Semanticscholar\",\"paperid\":null,\"PeriodicalName\":\"Journal of Applied Corporate Finance\",\"FirstCategoryId\":\"1085\",\"ListUrlMain\":\"https://onlinelibrary.wiley.com/doi/10.1111/jacf.12674\",\"RegionNum\":0,\"RegionCategory\":null,\"ArticlePicture\":[],\"TitleCN\":null,\"AbstractTextCN\":null,\"PMCID\":null,\"EPubDate\":\"\",\"PubModel\":\"\",\"JCR\":\"Q4\",\"JCRName\":\"BUSINESS, FINANCE\",\"Score\":null,\"Total\":0}","platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Applied Corporate Finance","FirstCategoryId":"1085","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/jacf.12674","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0

摘要

彼得罗•韦罗内西(Pietro Veronesi)和路易吉•津加莱斯(Luigi Zingales)描述了2008年全球金融危机期间政府对美国金融业进行大规模干预的惊人代价为了在未来降低这类成本,已经引入了广泛的监管,以使银行更具弹性,并保护纳税人和私人投资者免于承担救助成本但一个关键问题依然存在:2008年后的监管框架是否有效?本文通过对瑞士银行与瑞士信贷合并案例的分析来揭示这一问题。2023年3月19日星期日晚上,瑞士联邦委员会、瑞士国家银行和瑞士金融市场监管局(Finma)联合宣布,瑞士信贷(CS)与其国内银行业竞争对手瑞银集团(UBS Group AG)进行了精心策划的纾困合并,标志着瑞士银行业167年辉煌历史的结束瑞士联邦的消亡动摇了人们对一个稳定的瑞士联邦的信心,这个联邦通常被亲切地称为“海尔维蒂亚”。旨在恢复对瑞士金融体系信心的救助合并,严重偏离了标准的银行处置程序。它缺乏竞争性投标,并规避了典型的银行清算或收购和假设(P& a)交易,即收购银行购买破产银行的资产并承担其存款。相反,瑞士政府强制实施了一项政府紧急救助协议,其中包括瑞银和瑞银之间的一项完整的紧急股票合并交易。该紧急救助协议还包括2140亿美元的巨额国家流动性担保,以及总计96.3亿美元的巨额损失担保,以弥补某些CS资产变现时可能发生的损失。我们认为,政府对竞争性投标的排除,以及监管机构相对较晚的干预,导致了对收购方瑞银集团(UBS)意外有利的交易。我们表明,由于合并,已经发生了向特定资产所有者的重大财富转移。虽然这些财富转移中的一部分被CS股东和AT1债券持有人(本应承担破产负担的人)的再分配所抵消,但总体财富效应不能仅仅用参与公司的异常证券回报来解释。我们对合并引发的价值创造和破坏以及利益相关者和纳税人之间的财富再分配提供了见解。更具体地说,我们表明,瑞士的债务成本大幅增加,这是瑞银和瑞银之间的国家协调合并的结果。我们的结论是,有经济意义的部分成本是由外生承担的,也就是说,主要由纳税人承担。这就是我们所说的“赫尔维蒂亚的礼物”,它表明,目前的监管框架实际上并没有像人们所希望的那样,保护公众免受金融行为者不良行为的侵害。为了得出这个结论,我们采取了三个步骤。首先,我们量化了瑞银(收购方)和CS(目标方)的股东和债券持有人的财富效应。其次,我们将我们的实证研究结果与现有关于竞争性银行合并的学术文献的见解进行了比较。第三,我们评估了瑞士政府提供的巨额流动性和损失担保的预期再融资成本。我们利用3月17日星期五(下午5点30分)至3月21日星期二(下午5点30分)期间的高频盘中股票数据估计股东财富效应。救助合并导致瑞银股东的2天累积异常回报(CAR)为7.95%,CS股东的CAR为- 55%,而其他欧洲银行没有显着的异常股票回报从绝对值来看,相对于截至2023年3月17日的市值,这些异常回报意味着瑞银股东的财富增加了51.4亿美元,而CS股东的财富减少了43.5亿美元,6对CS的小型股票散户投资者产生了不成比例的负面影响,而不是大型机构投资者因此,我们观察到约7.9亿美元的正股东财富效应。接下来,我们考察了合并救助导致的债券持有人财富效应。该交易涉及减记AT1债券,名义价值为170亿美元,市场价值约为39亿美元。8虽然AT1债券的减记和相关数字得到了媒体的广泛报道,但很少有人关注合并对CS和UBS持有的直接债券的影响,尽管它们的价值明显高于AT1债券。由于债券市场通常流动性较差,9我们首先分析信用违约掉期(CDS)价差的盘中高频数据。来自CDS价差的价格信息是基于交易员在一个以准确交易信用风险而闻名的流动性市场上的知情价格发现。 10我们的研究结果显示,在2天的时间跨度内,CS累积异常CDS价差变化(CAC)为- 755个基点(bp),具有经济意义和统计学意义。相比之下,瑞银的息差在同一时期只减少了微不足道的4个基点。CDS价差的巨大异常变化表明,由于CDS价差对信用事件敏感,且与收益率价差密切相关,因此CS债券持有人经历了显著的异常收益。11为了更准确地以美元计算债券持有人的财富效应,我们使用了57只CS债券的每日债券数据,这些债券约占CS长期债务的80%。(可观察的)价值加权CS债券投资组合的2天CAR达到了令人印象深刻的+34.74%。从绝对值上看,相对于目标公司截至2023年3月17日的债券投资组合市值,这些异常收益对应的价值加权债券持有人财富增加了226.5亿美元,具有重要的经济意义。与此同时,我们发现瑞银债券持有人的财富没有增加。考虑到at1债券的净财富变化(- 39亿美元),这些发现表明,CS债券持有人的总财富增加了187.5亿美元。因此,考虑到上述计算的总股东和债券持有人财富效应,总财富增长为195亿美元(净股东效应为7.9亿美元,净债券持有人效应为187.5亿美元)。这可以解释为政府精心策划的纾困合并交易创造的净市场价值。整个净财富效应似乎是外生的,不能归因于合并银行内部或之间从债券持有人到股东的任何财富转移。是否可以用更低的成本拯救CS ?我们认为,如果允许对中信证券的股权进行竞争性竞标,可能会降低其救助价格。虽然从数量上确定这一点具有挑战性,但我们利用对竞争性合并投标的全面学术研究来支持这一论点。首先,先前的文献发现,非失败银行收购的股东异常回报为负12,而失败银行收购的股东异常回报为适度正13这些适度的car主要归因于投标人的限制在竞争性投标的情况下,中标者通常会支付过高的价格,从而为目标公司的股东带来更有利的条件。因此,根据Richard Roll15的赢家诅咒假说和现有文献,我们认为投标人限制可能导致财富从CS转移到UBS股东手中。其次,文献表明,财富转移到债券持有人可能归因于共同保险效应随着合并的宣布,市场预期CS的杠杆率和违约概率将大幅下降。很明显,企业杠杆率的意外下降会导致财富从股东向债券持有人转移当目标公司的评级低于收购公司的评级,或者当收购被期望降低目标公司的风险时,这种共同保险效应尤其明显这两个条件在这次合并中都存在,这支持了巨额异常回报的存在。然而,CS债券持有人获得了近187.5亿美元的显著财富增长,加上瑞银债券的价值没有变化,这表明仅凭这一机制并不能完全解释观察到的效应。第三个起作用的额外因素可能是“太大而不能倒”的渠道,新银行可能从与“太大而不能倒”地位相关的强化收益中受益这次收购的一个重要因素是瑞银与联邦财政部(FDF)签署的损失保护协议。该协议涵盖了瑞士信贷的特定资产组合,约占合并后银行总资产的3%。瑞银可以从联邦政府获得超过50亿瑞士法郎的已实现亏损担保(最高140亿瑞士法郎)。只有实际发生的损失才能由本保函承保。为了支持这一渠道,我们发现政府干预导致瑞士债务成本大幅上升,最终给纳税人带来负担。与先前关于政府干预成本的文献一致,该事件导致瑞士主权信用风险大幅增加,从而导致其预期资本成本增加瑞士的主权信用风险(以CDS价差衡量)增加了一倍多。相关的预期资本成本增加的现值约为58 - 72亿美元。因此,我们得出结论,由于异常的证券回报,195亿美元的巨额净财富增长最终落在了纳税人的肩上。上述损失保护协议,以及观察到的瑞士债务成本大幅上升,都支持这种解释。 虽然瑞士政府声称,救助合并是一项私人交易,可能对纳税人来说成本为零,但我们发现,可能有大量财富从纳税人转移到瑞银/CS的利益相关者身上。我们发现了可能创造这种惊人的巨大综合财富效应的各种渠道。首先,我们认为瑞银股东从政府施加的竞购限制中获利。这些竞标限制可能是政府与瑞银和瑞银集团高层代表之间政治关系的结果,他们早在2022年12月就开会讨论了潜在的合并和其他应急计划。其次,我们认为债券持有者从大量的共保效应中获利。第三,“太大而不能倒”的渠道,加上涵盖特定CS资产组合(相当于合并后银行总资产的约3%)的重大损失保护协议,可能促成了综合财富效应。最后,重要的是,我们从分析中推断,政府干预可能以瑞士主权信用风险大幅上升为代价,从而增加其预期债务成本,这意味着纳税人财富转移的风险约为60至70亿美元。在解决具有系统重要性的银行机构的问题上,2007-2009年危机后采取的改革措施似乎仍有不足之处。正如Veronesi和Zingales在2008年全球金融危机期间对美国金融部门所描述的那样,政府在银行业危机中广泛干预的惊人成本似乎是银行体系固有的与2015年Anjan Thakor更详细描述的全球金融危机一样,71名纳税人和私人投资者似乎仍在为破产银行承担救助成本。当局行动迟缓,只有在失败的风险变得严重之后才进行纠正。银行高管的失败和监管机构在干预情况下预测必要任务(例如避免对投标人参与进行不必要的限制)方面的不足,都造成了纾困过程中代价高昂的低效率,包括从纳税人到银行业的大量财富转移。恢复对金融体系的信心本应以更低的成本实现。
本文章由计算机程序翻译,如有差异,请以英文原文为准。

The UBS-Credit Suisse Merger: Helvetia's Gift

The UBS-Credit Suisse Merger: Helvetia's Gift

Pietro Veronesi and Luigi Zingales provide an account of the staggering costs of extensive government intervention in the US financial sector during the 2008 global financial crisis.1 To reduce such costs in the future, extensive regulation has been introduced to make banks more resilient, and to protect taxpayers and private investors from bearing bailout costs.2 But a key question remains: Is the post-2008 regulatory framework effective? In this paper, we analyze the UBS-Credit Suisse merger to shed light on this question.

On the evening of Sunday, March 19, 2023, the Swiss Federal Council, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority (Finma) jointly announced the orchestrated bailout-merger of Credit Suisse (CS) by its domestic banking rival UBS Group AG (UBS), marking the end of 167 years of proud Swiss banking history.3 The demise of CS shook faith in a stable Swiss Confederation, often affectionately called “Helvetia”.4

The bailout-merger, which aimed to restore confidence in the Swiss financial system, deviated significantly from standard bank resolution procedures. It lacked competitive bidding and circumvented a typical bank resolution or purchase and assumption (P&A) transaction, where the acquiring bank purchases the failed bank's assets and assumes its deposits. Instead, the Swiss government forced the implementation of a government emergency rescue deal, which consisted of a complete emergency merger share-deal between UBS and CS. This emergency rescue deal also included massive state liquidity guarantees in the amount of 214 billion (bn) US dollars (USD) and, additionally, a substantial loss guarantee totaling 9.63 bn USD to cover potential losses incurred on the realization of certain CS assets. We argue that the exclusion of competitive bidding, imposed by the government, and the relatively late intervention of the regulator have led to an unexpectedly favorable deal for the acquirer, UBS. We show that significant wealth transfers to specific asset owners have taken place due to the merger. While some of these wealth transfers were offset by redistributions from CS shareholders and AT1 bondholders, the ones who are supposed to bear the burden of bankruptcy, the overall wealth effect cannot be solely explained by the participating firms’ abnormal returns on securities. We provide insights into the merger-induced value creation and destruction and the redistribution of wealth amongst stakeholders and taxpayers. More specifically, we show that Switzerland's cost of debt increased substantially as a consequence of the state-orchestrated merger between UBS and CS. We conclude that an economically meaningful part of the costs is borne exogenously, that is, primarily by the taxpayer. This is what we call the “Helvetia's gift”, which suggests that the current regulatory framework does not actually protect the public from bad behavior by financial actors as much as one might hope.

To reach this conclusion, we undertake three steps. First, we quantify the wealth effects for the stockholders and bondholders of UBS (acquiror) and CS (target). Second, we compare our empirical findings with insights from extant academic literature on competitive bank mergers. Third, we assess the anticipated refinancing cost of the massive liquidity and loss guarantees granted by the Swiss government.

We estimate stockholder wealth effects using high-frequency intraday stock data over the period from Friday, March 17 (5:30 p.m.) to Tuesday, March 21 (5:30 p.m.). The bailout-merger resulted in a 2-day cumulative abnormal return (CAR) of 7.95% for UBS shareholders and a −55% CAR for CS shareholders, while other European banks show no significant abnormal stock returns.5 In absolute values, relative to their market capitalizations as of March 17, 2023, these abnormal returns translate to a wealth increase of 5.14 bn USD for UBS stockholders, and a wealth decrease of 4.35 bn USD for CS stockholders,6 with a disproportionate negative impact on small equity retail investors in CS, as opposed to large institutional investors.7 Therefore, we observe a positive combined stockholder wealth effect of approximately 0.79 bn USD.

Next, we examine bondholder wealth effects resulting from the merger-bailout. The deal involved the write-down of AT1 bonds with a nominal value of 17 bn USD and an approximate market value of 3.9 bn USD.8 While the AT1-write-down and associated numbers have received extensive media coverage, less attention has been given to the impact of the merger on CS's and UBS's holders of straight bonds even though they had significantly higher value compared to AT1 bonds. Since bond markets are generally less liquid,9 we first analyze intraday high-frequency data from credit default swap (CDS) spreads. Price information derived from CDS spreads is based on informed price discovery by traders in a liquid market known for accurately trading credit risk.10 Our findings reveal economically substantial and statistically significant cumulative abnormal CDS spread changes (CAC) of −755 basis points (bp) for CS over the 2-day horizon. In contrast, UBS's spread decreases by an insignificant 4 bp during the same period. The large abnormal CDS spread changes indicate that CS bondholders experienced significant abnormal returns since CDS spreads are sensitive to credit events and are closely related to yield spreads.11

To estimate bondholder wealth effects more accurately in USD, we utilize daily bond data for 57 CS bonds, which account for approximately 80% of CS's long-term debt. The 2-day CAR for the (observable) value-weighted CS bond portfolio amounts to an impressive +34.74%. In absolute values, relative to the market value of the target's bond portfolio as of March 17, 2023, these abnormal returns correspond to a significant and economically important value-weighted bondholder wealth increase of 22.65 bn USD. At the same time, we find no wealth increase for UBS bondholders. Accounting for the net AT1-bond wealth changes (−3.9 bn USD), these findings suggest a total wealth increase of 18.75 bn USD for CS's bondholders.

Therefore, considering the calculated total stockholder and bondholder wealth effects outlined above, the combined wealth increase amounts to 19.5 bn USD (0.79 bn USD net stockholder effects plus 18.75 bn USD net bondholder effects). This can be interpreted as the net market value created by the state orchestrated bailout-merger deal. The entire net wealth effect appears to be exogenous, not attributable to any wealth transfers from bondholders to stockholders within or across the merging banks.

Could CS have been rescued at a lower cost? We posit that allowing for competitive bidding for CS's equity would have likely resulted in a lower price for its rescue. While it is challenging to establish this quantitatively, we draw on comprehensive academic research on competitive merger bids to support this contention. First, prior literature finds negative stockholder abnormal returns for non-failed bank acquisitions12 and modest positive CARs for failed-bank acquisitions.13 These modest CARs are primarily attributed to bidder restrictions.14 In competitive bidding scenarios, the winning bidder often overpays, leading to more favorable terms of the target's shareholders. Therefore, drawing on the winner's curse hypothesis of Richard Roll15 and existing literature, we argue that bidder restrictions likely resulted in a wealth transfer from CS to UBS stockholders.

Second, the literature suggests that the wealth transfer to CS bondholders may be attributed to a coinsurance effect.16 With the merger announcement, the market anticipated a substantial decrease in CS's leverage and probability of default. It is evident that an unexpected decrease in firm leverage can lead to wealth transfers from stockholders to bondholders.17 This coinsurance effect is particularly pronounced when the target's rating is lower than the acquirer's or when the acquisition is expected to reduce the target's risk.18 Both conditions were present in this merger, which supports the existence of large abnormal returns. However, the significant wealth gain of almost 18.75 bn USD for CS bondholders, combined with no change in the value of UBS bonds, suggests that this mechanism alone cannot fully explain the observed effects.

A third additional factor at play may be the “too-big-to-fail” channel whereby the new bank likely benefits from reinforced gains associated with its “too-big-to-fail” status.19 An important element of this takeover was the loss protection agreement signed by UBS with the Federal Department of Finance (FDF). This agreement covered a specific portfolio of Credit Suisse assets, which corresponded to approximately 3% of the combined assets of the merged bank. UBS could draw the guarantee for any realized losses exceeding CHF 5 bn from the federal government (up to a maximum of CHF 14 bn). Only losses realized could be covered by this guarantee. In support for this channel, we find that the government intervention resulted in a significant jump in Switzerland's cost of debt, ultimately placing a burden on taxpayers. Consistent with the prior literature on the cost of government interventions the event caused a substantial increase in Switzerland's sovereign credit risk and, consequently, its expected cost of capital.20 Switzerland's sovereign credit risk, as proxied by its CDS spread, more than doubled. The present value of the associated expected increase in capital costs, amounts to approximately 5.8–7.2 bn USD.

We thus conclude that the substantial combined net wealth increase of 19.5 bn USD, unexplained by abnormal security returns, ultimately falls on the shoulders of taxpayers. Both, the loss protection agreement mentioned above but also the observed jump in Switzerland's cost of debt do support this interpretation. A poorly managed bank is kept afloat, and an incentive for large banks to take excessive risks and lower their efforts to manage risks is heightened. While these costs may be outweighed by benefits such reducing the likelihood of a financial panic, achieving these benefits at a lower cost should have been the primary goal. This could have been accomplished through the avoidance of bidder restrictions and effective bank oversight that utilizes existing market signals in a timely manner to facilitate an orderly bank resolution.

The subsequent sections of the paper proceed as follows. Section 2 provides a description of the events leading up to the UBS/CS bailout-merger, Section 3 outlines the data and event study methodology used, Section 4 presents the empirical results along with robustness tests, Section 5 discusses the findings, and Section 6 concludes the paper.

To facilitate the bailout-merger, the Federal Council enacted emergency measures based on articles 184 and 185 of the Federal Constitution. These measures included the creation of a legal framework allowing the national bank to provide additional liquidity assistance beyond standard emergency liquidity assistance. The Federal Council also provided a default guarantee to the SNB. The Finance Delegation, representing the federal government and driven by the Federal Council), granted a 9 bn Swiss franc guarantee to cover potential losses arising from specific assets UBS acquired as part of the transaction.35 UBS was responsible for the first CHF 5 bn of any realized losses associated with winding down inherited Credit Suisse assets that were deemed non-core or incompatible with its risk profile. If losses exceed this amount, the federal government has committed to cover up to a maximum of CHF 9 bn. This Swiss federal guarantee obliged UBS to manage the assets in such a way that losses are minimized (and realization proceeds are maximized) and the federal government received broad information and audit rights in order to verify this. Furthermore, CS and UBS received a total of 200 bn Swiss francs in additional liquidity assistance loans from the Swiss National Bank, comprising a 100 bn Swiss franc loan with privileged creditor status in bankruptcy and a loan of up to 100 bn Swiss francs backed by a federal default guarantee.36 As of the end of May 2023, Credit Suisse had repaid its outstanding liquidity amounts received in full to the Swiss National Bank.

Almost a month later, on May 16, 2023, UBS disclosed potential costs and benefits amounting to tens of bns of dollars from its takeover of CS, highlighting the significant stakes involved in completing the rescue of its struggling Swiss rival. UBS estimated a negative impact of $13 bn from fair value adjustments and $4 bn in potential litigation and regulatory costs resulting from outflows. Additionally, the switch in accounting standards brought the total hit to $28.3 bn. However, UBS expected to offset these costs with a write-down of $17.1 bn from Credit Suisse's AT1 bonds as well as taking over CS for a fraction of its book value, resulting in a one-off gain of $34.8 bn from the acquisition.

While the disclosure of the accounting gain was seen as less favorable than expected, it did offer UBS a cushion to absorb losses and costs associated with the merger and was likely to contribute to a boost in UBS's future profits if the transaction proceeded as planned. The numbers underscored CS's frailty and the integration challenges that UBS faced. UBS has imposed several restrictions on Credit Suisse during the takeover, including limits on lending, spending, and contract sizes. These measures were seen as reasonable given the lapses in CS's risk controls, although they could cause certain clients to leave the bank.

On June 12, 2023, UBS successfully finalized its emergency acquisition of CS, thereby establishing a colossal Swiss banking institution with a balance sheet of $1.6 trillion and a robust foothold in wealth management. In tandem with this announcement, UBS revealed that CS will operate as a separate subsidiary. Additionally, CS's bankers will be prohibited from acquiring new clients from high-risk countries or investing in complex financial products. These preventative measures, formulated by UBS's compliance department, aimed to mitigate potential risks associated with the transaction.

We show that the UBS-CS-merger substantially impacted the wealth of the participating firms’ stockholders and bondholders. It created a net value of 19.5 bn USD, distributed to UBS stockholders (5.1 bn USD), CS stockholders (−4.4 bn USD), and CS bondholders (18.8 bn USD). The combined wealth effect cannot be explained by the participating firms’ abnormal returns on securities. While the Swiss government claims that the bailout-merger is a private transaction that has the potential to come at zero cost to the taxpayer, we find that there have likely been large transfers of wealth from taxpayers to UBS/CS stakeholders.

We identify various channels that may have created this surprisingly large, combined wealth effect. First, we argue that UBS stockholders have profited from bidding restrictions imposed by the government. These bidding restrictions may be the result of political ties between the government and top-level representatives of UBS and CS, who engaged in meetings to discuss the potential merger and other contingency plans as early as in December 2022. Second, we believe that CS bondholders profited from substantial coinsurance effects. Third, the “too-big-to-fail” channel, combined with a material loss protection agreement which covered a specific portfolio of CS assets (corresponding to approximately 3% of the combined assets of the merged bank) may have contributed to the combined wealth effect. Finally, and importantly, we infer from our analysis that the government intervention likely came at the cost of a significant jump in Switzerland's sovereign credit risk and thus an increase in its expected cost of debt, implying the risk of a substantial taxpayer wealth transfer in the magnitude of approximately six to seven bn USD.

It seems that the reforms adopted after the 2007–2009 crisis still fall short in resolving issues with systemically important bank institutions. Staggering costs of extensive government intervention in a banking crisis, as described by Veronesi and Zingales for the US financial sector during the 2008 global financial crisis, seem to be inherent in the banking system.70 As in the GFC, and described in more detail by Anjan Thakor in 2015,71 taxpayers and private investors still appear to bear the bailout costs for failing banks. Authorities act late, apply corrections only after the risks of failure have become severe. Both the failure of bank executives and the deficit of supervisors to anticipate necessary tasks in case of an intervention (such as avoiding unnecessary restrictions on bidder participation) have created costly inefficiencies in the bailout process, including substantial wealth transfers from taxpayers to the banking sector. Restoring confidence to the financial system should have been achieved at a lower cost.

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