Swiss National Bank expedites UBS acquisition of Credit Suisse
Chatham is committed to keeping our clients apprised of changes in counterparty risk. While the initial wave of concern was due to distress at a number of smaller banks, Credit Suisse’s shares saw significant sell-off headed into last weekend, sparking increasing concern in the market regarding financial institutions. While the Swiss National Bank took extraordinary measures to shore up Credit Suisse’s liquidity (lending CHF 50B from the Swiss National Bank’s liquidity facility late last week), it became clear there was a crisis of confidence in Credit Suisse. Unlike the smaller banks, Credit Suisse is deemed a global, systemically important bank (GSIB). In an effort to stem growing systemic distress, the Swiss National Bank took further action over the weekend by facilitating the acquisition of Credit Suisse by the larger Swiss bank, UBS.
While details are still being made public at the time of this writing, headlines indicate the purchase price is CHF 3B (less than half the value at which Credit Suisse was trading as of Friday), and that the deal is being supported by the Swiss National Bank with a CHF 100B liquidity facility and a guarantee from the Swiss national government of CHF 9B from potential losses to UBS from Credit Suisse assets.
By Friday, 2- and 10-year U.S. Treasury yields had slid to 3.81% and 3.39%, respectively (a 124 bp and 69 bp drop since the highs seen in early March). Following the UBS acquisition announcement, yields initially moved up in Asia trading but have returned to Friday’s ranges in European and early U.S. trading. Currently at 3.86% and 3.43% respectively, these continue to bounce around in volatile trading (see table below for comparison of swap rates).
Chatham is here to support you and your organization, especially during these periods of increased volatility. ChathamDirect, our debt and derivatives platform, is designed to help you quickly see your bank counterparty exposures and provides valuable insights into your hedge and loan portfolios. By leveraging ChathamDirect, you can stay informed about your hedge and loan positions while making strategic decisions about the future of your portfolio.
Please don’t hesitate to reach out to your Chatham contact with questions or changes you might want to make to your portfolio. Although interest rates have come down, high volatility and limited liquidity create a challenging market backdrop. Chatham is actively advising through this shifting landscape and can help you navigate these markets to efficiently manage your risk profile.
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Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.23-0067