Wednesday, April 24, 2024

UBS: THE SINKING TITANIC? - JustDario (UNDOING UNCERTAINTY)

 

 


EVERYONE IN UBS IS LOOKING FOR A LIFEBOAT TO ESCAPE THE SINKING TITANIC - JustDario: As I warned about many times before (#UBS ENCORE SERIES), the rescue of Credit Suisse was surely going to put #UBS in great danger and, as expected, the bank is now going through an existential crisis. The extent of the existential crisis was already clear in their Q4-23 results, where...

 

 This crisis is now starting to become public dominion since this news hit the tape: “Switzerland says UBS may need more cash. The bank is fuming – CNN”

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 So what’s going on? Not only did the Swiss government change the laws overnight last year, unconstitutionally (like bypassing shareholders’ approval or repaying Arab shareholders while nuking AT1 bondholders), to orchestrate #UBS and Credit Suisse merger (also with a timely liquidity injection from the #FED into the imploding Credit Suisse US operation), but now that they figured out the huge nuclear-ticking bomb they placed right in the middle of their country’s financial system, they are trying to make up for it in a way that will effectively choke a bank already short of breath.

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 Of course, investors swallowed not only the bite and the hook but also the whole line, stampeding into #UBS stock in a great display of unbelievable #FOMO stupidity since #UBS took over Credit Suisse on the 19th of March 2023.

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 UBS is a G-SIB bank that, after acquiring Credit Suisse assets, is now double in size, so yes you can say they are too big to fail but at the same time they are too big to be rescued in the era of Central Banks dealing with losses. As a matter of fact, The SNB reported a definitive loss of CHF3. 2 billion ($3.6 billion) for the 2023 reporting year, following a huge loss of CHF132. 5 billion in 2022 (when Credit Suisse was still afloat!) and in 2023 its losses were not “that bad” thanks to the gains in its huge US #stocks and foreign government bonds portfolio (rates came down sharply in Q4-23 helping them big time)

 So what’s going to be the end game here? Personally, I expect #UBS will be allowed to trigger the break-up clause in their M&A agreement with Credit Suisse, and then Credit Suisse’s old operations across the globe will be split into several smaller “banks” and recapitalized by local central banks with the #FED in the lead. The capital injection won’t be able to buffer the gigantic amount of losses from Credit Suisse’s toxic assets and derivative books, especially Archegos ones, so counterparty banks will be hit with a share of the losses proportionally to the amount of exposure they carried against Credit Suisse positions. Will #UBS be “safe” at this point? Unfortunately, no, and the reason is they were the biggest risk counterpart of Credit Suisse still. On top of that, the bank is dealing with toxic assets of its own, in particular from Asian private banking operations where for years the bank was very loose in providing equity financing and asset financing to HNWI against collateral that is not only far from enough to cover the losses but cannot even be liquidated since the market is very illiquid and most of these assets were totally private unlisted ones.

(Los pánicos no destruyen el capital. Meramente revelan la medida en que el capital ha sido ya previamente destruido por su traición al dedicarse a inversiones improductivas sin ninguna esperanza)

John Stuart Mill

(Creo que las instituciones financieras son más peligrosas para nuestras libertades que los ejércitos de ocupación. Si el pueblo americano permitiera a los bancos privados controlar la emisión de moneda, primero por la inflación, y después por la deflación, los bancos y corporaciones que crezcan alrededor de los bancos privarán a la gente de toda su propiedad hasta que sus hijos despierten sin morada en el continente que sus padres conquistaron. El poder de emisión debería ser rescatado de los bancos y restituido al pueblo, a quien propiamente pertenece.)


Thomas Jefferson: Carta al Secretario del Tesoro Albert Gallatin (1802)


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