Hey guys, it's Sasha A few minutes ago Credit: Swiss The bank that was founded 167 years ago in 1856 de facto evaporated because it was bought by UBS and the world of Finance just exploded because this deal is dirtier than a sweaty Jeffrey Epstein Taking a mud bath. Investors and Credit Suisse have been shown the middle finger by the Swiss government and there is something incredibly weird about this deal. So let me unpack exactly what just happened, explain some of the background and why this deal is so dirty, and I will share some thoughts on what this may mean for investors in general because the newspapers have already declared that the credits was collapsed is financial Armageddon. But let's start with what just happened because Credit Suisse was in deep trouble back in October Here's a video from October 3rd by some guy saying that Credit Suisse is about to collapse now I Know all this is happening in the back end of Silicon Valley Bank collapsing in the United States But the truth is, the situation around Credit Suisse is not related.

Credit Suisse Did not have a problem with carrying bonds, paying low yields No. Credit Suisse had a slightly different problem of being absolutely at risk management, completely incompetent management, and repeatedly breaking the law which is generally considered to be a little bit worse than buying a low-yield government bonds in just the last few years. Credit Suisse was the underwriter for luck and coffee the Chinese company that was going public on NASDAQ when it transpired that their sales numbers were fake. The Credit Suisse CEO stepped down in 2020 because it turned out the bank was spying on his ex-employees Credit Suisse also had a few problems with investing in Dog in 2021.

They lost five and a half billion dollars when Arca's Capital collapsed. They also managed to drop 10 billion dollars into green Soul before that collapsed and Credit Suisse pleaded guilty to wire fraud and paid hundreds of millions and fines in the Mozambique tuna Bond Scandal. The very short version of that is that the bank lent Mozambique a load of money for government projects and a whole load of that money magically disappeared Into The Ether which in turn caused the Mozambique economy to implode. So Credit Suisse was already in pretty bad shape going into 2022 and more recently into 2023.

and then key four of last year, 110 and a half billion francs were withdrawn from the bank, which was substantial, but the bank narrowly avoided collapsing. Back then, they raised funds, announced 9 000 job cuts, and said that they are going to turn things around Credit Suisse found a number of backers happy to take on the risk. The Saudi National Bank became the largest shareholder owning 9.98 of Credit Suisse investing about one and a half billion dollars into the bank. and the very weird thing is is that immediately after buying 10 of Credit Suisse the Saudi National Bank then started the collapse of Credit Suisse on Wednesday.

the chairman of the Saudi National Bank was asked if they would put more money into Credit Suisse. You know to help them investors were jittery because credit defaults was were apparently exploding at the beginning of last week and when the chairman of the Saudi National Bank was asked he if they would give more support to Credit Suisse he replied absolutely not. They're all sound. everything's fine.

Yeah I don't think they'll need more capital and this was the start of the end for clickers. The biggest shareholders who have unlimited money just announced that the world that they think that Credit Suisse is a dead horse. on Thursday the Swiss National Bank stepped in and they gave Credit Suisse 50 billion dollars to try and keep it alive because Credit Suisse is the second biggest bank in Switzerland and has balance sheet is twice the size of Lehman Brothers when those guys collapsed and you might remember what happened after that happened. but on Friday things got worse and credit Suite stock closed at 1.96 26 down from last week and 76 down in the last 12 months.

but then things got a whole lot worse over the weekend. on Saturday transpired there's something pretty bad was going on with Credit Suisse to the point where on Monday it could collapse completely and risk taking the banking system down with it. The Swiss regulators and Swiss governments stepped in immediately and held meetings with the board of Credit Suisse and based on what happened later, it. kind of sounds like Credit Suisse told the Swiss authorities that their balance sheet is in a state that is technically known as a pile of garbage.

It's not clear exactly what the dirty stuff Credit Suisse was showing to the Swiss government was, but the very next day, the Swiss government called in UBS and arranged for UBS to buy Credit Suisse There were two problems though. First, UBS didn't really want to buy Credit Suisse because well, you know Credit Suisse is a steaming pile of horseshit. So UBS apparently decided to lowball an offer of one billion dollars for a company that was valued at 8 billion dollars at the end of trading on Friday. In the end, the deal was announced and here are the details: UBS will buy Credit Suisse at 76 teams a share.

that's about 82 us cents. And given that Credit Suisse was trading at 1.96 on Friday, that means UBS is buying it at a roughly 60 percent discount. but UBS negotiated hard. So along with getting a 60 discount, the Swiss government is also throwing in a hundred billion Swiss Francs as a credit line as about 108 billion dollars.

U.S That's insane and the Swiss government is also going to guarantee take on absorb up to nine billion dollars in losses coming from the sitting on the credit Swiss balance sheet that UBS is now acquiring. So you've got to wonder what is it that they all know that they've all seen that sitting there? That is causing all of this to happen. And here is another kick in the nuts: Investors do Not get paid in cash. No, No, No, that would be too obvious.

Instead, you get to convert your worthless shares of Credit Suisse into an even more worthless share of UBS. Oh, and while all this was happening, the Swiss Finance Regulator Finma also decided to help out UBS by saying that around 17 billion dollars worth of Credit Suisse's tier one Capital bonds will now immediately become worthless. So anyone who bought these bonds from the bank in the past has now lost a hundred percent of their investment. But wait.

I haven't even got to the worst bit because you see Credit Suisse is a publicly traded company. It has shareholders. So how the does a public company that has shareholders just get sold at a 60 discount over the weekend with hundreds of billions of dollars in extra perks being given to this other company? Because you know usually when that happens when a company is being sold, the shareholders of the company, the shareholders of the bank get to vote. You know, would you like to go and lose sixty percent of your investment by being sold to UBS Or is there maybe a better way? Maybe you can unwind this pile of maybe go bankrupt and actually have a hope of recovering more than 40 percent of your money? Well, the Swiss government did not disappoint.

This was a famous for valuing people's right to vote. This was regularly vote on referendums on government policy. Last year the people voted against a ban on human and animal experiments and for limiting tobacco advertising to children. There were four referendums in total, but clearly whatever Credit Suisse showed at the Swiss government yesterday was so bad that the Swiss government has rushed in and passed an emergency law to prevent shareholders from being able to vote on this deal.

You cannot make this up. Every shareholder of Credit Suisse just got shown the middle finger by the Swiss authorities. completely and utterly the most fundamental rule of company. Lord Just got thrown out because a bunch of and Suits sat in a room and decided that it would be so I Guess a law preventing the shareholders of a company from having a say and being able to vote is not important enough to put it up for a debate by the Swiss people because it's not as important as the 2021 vote on the economic partnership with Indonesia.

So the press conference this evening confirmed that Credit Suisse is now gone and will become part of UBS and the big question is, what are the ramifications from here Now First up, all investors in Credit Suisse are completely royally, especially Saudi Arabia who managed to invest 1.5 billion dollars for 10 of Credit Suisse and have now lost about 80 percent of that investment in just a few days. And the fact that they started this collapse in the first place makes it somewhat amusing. But is this a Lehman Brothers episode? Are we about to go down the same path as in 2008? Is this the kicker that's going to implode the financial markets? Well, the stock market is certainly going to have an interesting day tomorrow. On the one hand, confidence in the banking sector could not be lower right now.

It is so low that the Panic itself could cause more short-term perturbations. In fact, the Panic itself is kind of the biggest problem here. but it's important to remember two things: First, the problems that Credit Suisse had on his balance sheet are nothing new and are not representative of the banking sector. in General Credit Suisse have managed to create an entire new level of being utterly Banking and making awful decisions for themselves.

And second, the U.S banking sector has just had the government virtually guarantee 1 hundred percent of all deposits the US government has just lent massive amounts of money to Banks across the industry to shore up liquidity and big U.S banks have now been depositing their cash in smaller Banks to prevent them from collapsing and preventing them from having Bank runs. Panic though is a dangerous word in banking because no, Bank can survive a complete bank run because they don't have the cash sitting there ready to hand out. But these moves by the Fed and US Government are important even if the dimwits on Twitter are still busy trying to sell fear and start a bank run Regardless, Now, it is possible that on Monday, the US government extends their deposit guarantee from Silicon Valley Bank and Signature Bank to cover the entire U.S banking sector. Maybe it will happen at some point later this week or next week, or whenever because de facto that guarantee is already there from them bailing out those first two.

Banks If a third bank was a trouble, say sometime next week. how would the government justify not backing those deposits when they just guaranteed 100 of the money in the first two? Well, I guess the first two did have the Venture Capital guys who are mates with the government. So it's possible, but it's probably not going to happen. So a guarantee would basically convert the FDIC insurance from just protecting 250 000 per account to protecting everything.

The US government has already started buying up the low yield bonds from bank balance sheet to par value to inject liquidity because Banks could only sell them at heavy discounts because the rates have since gone up substantially. And interestingly enough, on Wednesday Jerome Power will be announcing the Earth Omc's decision on the next rate increase. Given this tone of events over the weekend, even a 25 basis point increase now seems unlikely because it is only going to exacerbate the bank balance sheet problems. Further, the FED is already having to dish out loans to prop up the banks, which is increasing the Fed's balance sheet while they are busy doing quantitative tightening at the same exact time.

So increasing rates doesn't seem to make sense because it would only Force the FED to dish out even more loans and increase their balance sheet as a result. So, in a roundabout kind of way, weird way, this banking crisis May well be the trigger that stops rate hikes. Then, as inflation keeps falling, we may see a move to lower rates sooner rather than later because this would immediately ease some of these pressures the banking sector is facing and with jobs remaining high and inflation collapsing at the same time, the FED can kill a whole flock of birds with one stone.