from Aditya Kondawar | by Aditya Kondawar

The merger of Credit Suisse (CS) and UBS will create a leading global wealth manager with USD 5 trillion of invested Group assets. This will be ~2x the size of France's GDP! But what led to the downfall of CS and what will the merger look like? A thread, Do Retweet :) t.co/8g1c4Wk4vp

1/n CS was Switzerland's 2nd largest bank & the world's 8th largest investment bank was 160+ years old. CS has been in a lot of trouble recently The stock has been down 88% in 5 years and down 92% from 1995. Their deposits gave more returns than their stock! t.co/X4T19thWKC

2/n - In the latest results we have seen that CS has Suffered its biggest annual loss of 7.3 billion Swiss francs since the financial crisis this year - Clients had pulled 110 billion Swiss francs ($119 billion) of funds in the fourth quarter t.co/WS9KgdCEbn

3/n Why did this happen? - Losses in Investment Banking - The Bank did a lot of Paaps/Sins here in pursuit of fees and high growth (Who doesn’t love fast growth right?) - But high growth for CS came at a BIG cost (This is a point that @itsTarH bhai also made)

4/n “Our vision is to become the world’s premier and most admired bank, renowned for our expertise in private banking, investment banking, and asset management. We believe that nothing short of excellence will suffice.” Says the 2008 Annual report of Credit Suisse Group AG!

5/n - The Bank found gold in investment banking - It took the route of high growth here and earned some fat fees. - But as we can see from 2008 to 2022, the bank ended up with huge losses as well! t.co/NSKG8VSuIC

6/n - From its peak Investment banking revenue of 20.5 billion Dollars, the revenue today is at 2.1 billion dollars, down 90%! Massive pullback here. - They not only faced losses but also struggled to compete with larger rivals like Goldman Sachs, JPMorgan, and UBS t.co/yGJXoO4ioq

7/n - The sell-off in CS shares started in 2021 - There was the collapse of Archegos Capital - CS was one of the largest lenders to them and when the fund's highly leveraged bets went bad, they had huge losses. They lost 5.5 Billion $ - Ouch

8/n - The collapse of the British financier Greensill Capital – CS was forced to freeze $10 billion of supply chain finance funds in March 2021 when British financier Greensill Capital collapsed after losing insurance cover for debt issued against its loans to companies

9/n - CS had marketed their high-yield debt products as safe (If some debt product is giving you a very high-interest rate, it probably is too good to be true). A number of investors sued the bank and around 7 Billion $ has been returned so far.

10/n - The shares recently hit their all-time lows after Saudi National Bank, the bank's top backer, told reporters it could not give more money to the bank - In June, the bank was convicted of failing to prevent money laundering by a Bulgarian cocaine trafficking gang

11/n - Lax risk management practices, which led to risky bets with its clients' money. The Archegos and Greensill scandals are some examples CS announced mass layoffs in recent months with more layoffs expected (Sincerely Hoping the best for those laid off)

12/n CS made just 4 billion dollars of net profit in the last 15 years! Thanks to all these concerns, their CDS spreads widened and illiquidity concerns arose

13/n Merger - - CS shareholders will get UBS stock in a deal that values the bank at 3 billion francs. All shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. t.co/xCfvHvf9n6

14/n - The Govt. backed the deal with a liquidity backstop, a guarantee to cover $9.7 billion of UBS’s losses, and by waiving the requirement to get shareholder approval. - The deal is expected to close by the end of the year

15/n -UBS would assume the first CHF 5 billion francs and the Swiss Govt. the next CHF 9 billion of losses. Any further losses to be borne by UBS - The Swiss National Bank is offering a CHF 100-billion-franc liquidity assistance to UBS as well

16/n - UBS Chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank. "Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture"

17/n The pursuit of seeking High Growth in Banking consistently can be very dangerous. Quality of book gets compromised I always like to Say Banking isn't just about lending but also taking that money back Underwriting Standards & Cautiousness of the Bank >> Growth of the bank

18/n End of thread. Thanks for reading. Stay tuned for more :)