How does the sage advice go? Keep your friends close. Keep your enemies closer.
It was about three years ago that Credit Suisse got caught for spying on its former executive in Zurich: Iqbal Khan, who had once been head of the bank’s wealth management division. An investigator had been trailing Khan for about a week in September 2019, snapping an occasional photo, and trying to determine whether Khan would lure any Credit Suisse colleagues over to his new employer, located literally next door: UBS.
Khan reported the investigator to the police, sparking what would turn into a messy legal battle and high-profile Wall Street scandal that forced Credit Suisse’s COO and security chief, and later CEO, to submit their resignations and for the bank to ultimately settle.
It was one of a few very-public spats between Credit Suisse and UBS that date back years and make UBS’s planned acquisition of its competitor all the more intriguing.
Here’s another example: When Credit Suisse shuttered its U.S. private banking unit back in 2015, UBS got in the way of the bank’s highly controversial arrangement with Wells Fargo, in which Credit Suisse gave Wells Fargo exclusive recruiting rights for its financial advisors and apparently withheld deferred compensation from financial advisors who chose not to take the package. UBS successfully enticed more than one-third of Credit Suisse’s financial advisors away regardless, sparking a feud in which UBS ultimately had to pay $9 million to settle claims of unfair competition and “raiding.” (UBS said at the time that the claims were “without merit” and that the order was “a bad decision that is out of line with the applicable law.”)
Now, the two rivals are coming together. And you have to wonder how that will go, which executives will last, and which divisions ultimately survive, are spun out, or wind down. (A UBS spokeswoman declined to comment beyond the company's statements this weekend regarding the acquisition.)
UBS is paying $3.2 billion in an all-share deal for Credit Suisse—hardly anything. For comparison purposes, UBS was ready to dish out about a third of that—$1.4 billion in cash—for the relatively minuscule fintech startup Wealthfront two years ago, though that deal ended up falling apart when the markets soured (Wealthfront managed $27 billion at the time of the deal talks, compared to Credit Suisse’s $600 billion as of December).
But this is 2023—and this is March 2023. And this is also Credit Suisse.
Here’s a stock timeline that Morningstar put together on Credit Suisse, which has had three CEOs since 2020. The level of tumult at this bank is almost laughable.
It doesn’t matter that Credit Suisse is one of the world’s largest wealth managers, nor that it has been around for nearly 167 years. UBS is stepping into an absolute mess. Credit Suisse has been riddled with scandal, particularly in the last three years, and the enormous losses from some of its key customers, such as its $5.5 billion exposure to the high-risk, now-defunct investment fund Archegos Capital Management, have been costly.
All that was before the collapse of Silicon Valley Bank, when depositors started second-guessing their level of trust in their banking institutions. Credit Suisse couldn’t withstand much more skepticism: Customers had already pulled $110 billion in assets out of the bank in the last three months of 2022. One of its most loyal investors revealed he had run for the door the first week of March. Even the Swiss National Bank’s $54 billion offering last week couldn’t save Credit Suisse.
Acquisition talks had been underway since last Wednesday, but UBS has made it pretty clear this wasn’t how it hoped things would play out.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS Chairman Colm Kelleher said in a statement on Sunday.
Even so, a deal was a better outcome than the alternative: a wind-down that would have been painful for the whole financial system and one that could have harmed the reputation of banking in Switzerland. And Swiss regulators had ruled out a potential rescue plan from a group of Credit Suisse investors that included one of its largest shareholders, Saudi National Bank, which had reportedly proposed to protect bondholders with a $5 billion cash injection, according to the Wall Street Journal.
To get the Credit Suisse acquisition done, the Swiss government guaranteed UBS it would backstop more than $9 billion to cover potential losses from Credit Suisse’s illiquid investments. And the Swiss National Bank is providing more than $100 billion in liquidity.
While some of Credit Suisse’s business lines, such as its wealth management business in Asia, may be rather appealing to UBS, it’s unclear what else will be. UBS says it will be “de-risking a lot of the tricky businesses that we are inheriting.”
Credit Suisse was going to spin out its investment banking advisory business, but who knows whether that will happen, as UBS says it will be managing down much of it. Credit Suisse's activities in the U.S. startup debt financing market, where it has offered lines of credit to the likes of corporate card startup Brex or lending fintech Kabbage, may not be a priority. (Credit Suisse had gotten out of some of this already. Brex says its line of credit is now through Atlas Group, which spun out from Credit Suisse earlier this year.)
Some good news, please? As Silicon Valley Bank spiraled into collapse over the last two weeks, not all was doom, gloom, and panic. I’ve heard about a lot of people looking out for one another—loans from personal accounts, bankers working around the clock, and founders stepping in to help each other out. Let’s draw attention to some of those stories in Term Sheet. Which individuals have gone above and beyond during the last couple of weeks? Who are the unsung heroes? I want to hear who has restored your faith in the private markets.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
