TheChek News Flow

Lessons should be drawn from how the crisis at the bank developed

Bank investors are well aware of the risks; they know that banking relies on trust and that sentiment can change quickly. The crisis now faced by Credit Suisse is, however, a previously unseen phenomenon.

Every single bank failure I can remember was caused by hidden losses, be they in loan books, derivatives books or bond books. Even though this latest episode of market panic was triggered by bond losses in midsized American banks, there is no suggestion that the current Credit Suisse crisis stems from this problem. So how did this happen and what are the lessons we can draw from the crisis and the intervention by the Swiss authorities?

In shaky markets following the collapses of Silicon Valley Bank and Signature Bank, an awkward statement by Credit Suisse’s largest shareholder, saying that it would not provide any further assistance, was enough to send the bank’s share price into a tailspin. Financial assistance is the Chekhov’s gun of banking: mention it and it is very likely that it will be used before the end of the play.

It is not a coincidence that Credit Suisse has become the main target of the markets. For years now, it has been embroiled in a series of scandals and management controversies. It sometimes feels like its annual report is nothing but a long list of litigations both old and new along with acknowledgment of poor risk controls.

Consequently, CS has established itself as the weakest link of the European globally systemic banks. It is a bit of an odd weak link, because it had plenty of capital and plenty of liquidity. It is not the only bank with low profitability and is not even the only one that had deposit outflows in the fourth quarter. And it is certainly not the only bank to face scandals over the years. It is, however, the one that had all these weaknesses at the worst possible moment.

What were the options to stop the bleed? The Swiss authorities did not really have a choice. Ultimately, Credit Suisse’s own clients decided its fate, not the investors. They had made up their minds and withdrew funds. Merging with UBS is an obvious solution that was on everyone’s mind. Maybe the Swiss authorities will be criticised because they reportedly did not do more to open the bidding war to non-Swiss players, but can we really blame them? Can anyone remember a bank failure resolved in a weekend with a foreign white knight?

This is why UBS has been in a very strong negotiating position. People will argue about the possibility of litigation losses, further bad loans or the cost of winding down the investment bank of Credit Suisse. But UBS is paying a fraction of the bank’s shareholder equity, estimated at SFr45bn ($49bn) at the end of last year. Even after accounting for the likely sale of some assets in the Swiss retail bank to manage competition issues, this deal is likely to be very value enhancing for UBS shareholders. Restoring client confidence and low funding costs could also be a game-changer for profitability.

Details on the treatment of bondholders were being keenly awaited by investors at the time of publication. But longer term, there could be issues with financial stability if they are forced to take losses in the case of a market panic on a bank with high capital and liquidity that was supported by its supervisor.

There are many lessons to be drawn from this crisis, but my hope is that ultimately the one that will prevail is this: a bank’s culture is too important to treat it lightly. A bout of market volatility after internal failings or even a banker gone rogue can jeopardise the work of tens of thousands of hard-working people who will feel both betrayed and frowned upon just because they worked in the wrong company. Regulators and investors have done a lot of work on this, but evidently there is still much to do.

China’s leader also wants to assert peacemaking credentials and stabilise relations with Europe

Days after Vladimir Putin was hit with an international warrant for alleged war crimes in Ukraine, Xi Jinping’s first state visit to Moscow in four years is a demonstration of the Chinese leader’s commitment to Russia’s president — but is also set to show the red lines in what the pair last year dubbed a “no limits partnership”.

Putin, who travelled defiantly to occupied Ukrainian territory at the weekend after the International Criminal Court warrant, will hope that Xi’s three-day visit from Monday will lend legitimacy to his invasion of Ukraine and that China might pledge material support to help his military fight it.

But there are signs that Xi will remain guarded over the potential costs of friendship with Russia’s leader, particularly in Europe as Beijing tries to boost trade after its zero-Covid policy savaged its economy last year. And despite warnings from the US that China was considering sending arms to Russia, there is as yet little evidence of substantial flows of weapons between the two countries.

After his trip to Moscow Xi may call Putin’s nemesis, Ukraine’s president Volodymyr Zelenskyy, according to one person familiar with the matter. It would be Xi’s first direct contact with Zelenskyy since the full invasion and a sign of the constraints China sees on its alliance with Russia, at a time when Beijing wants to assert credentials as a potential peacemaker.

“I think he will do the call,” said Yu Jie, a senior research fellow on China in the Asia-Pacific Program at Chatham House. “China simply cannot afford to become a rival of both the US and Europe.”

Beijing’s close ties with Moscow despite the war, which analysts have dubbed “pro-Russia neutrality”, are damaging its standing in Europe. While China’s position paper last month on a potential settlement in Ukraine was met with scepticism in the west, it is a way for Beijing to reposition itself and see how the conflict evolves, analysts say.

The challenge for Xi is to strike a balance between those concerns and the benefits of closer ties to Moscow at a time of mounting tension with the US and its allies.

“The Ukraine war has intensified the great power rivalry and made the geopolitical faultlines between the US and China even more pronounced, and in response China and Russia are now really consolidating their alignment,” said Alexander Korolev, an expert on China-Russia relations at the University of New South Wales in Sydney.

“China will need Russia for its impending confrontation with the US, which is becoming very real,” he added, pointing to closer military relations between the two countries and Beijing’s need to prepare alternative energy supply routes in case seaborne oil imports from the Middle East were blocked in any clash with the US over Taiwan.

As Europe and the US have imposed harsh sanctions on Russia, China’s trade with its neighbour has soared over the past year, jumping 34.3 per cent to a record Rmb1.28tn, according to Chinese state-controlled media. This year, natural gas imports from Russia are expected to rise by a third.

Trade with Beijing has given Russia an economic lifeline, making up for some lost oil sales to the US and Europe and supplying replacements for crucial western-made components such as microchips, 5G equipment and industrial machinery.

“[The Chinese] understand that this is a very beneficial moment for them to get Russia deeper in their pocket. They have a tremendous amount of leverage,” said Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace.

Putin’s framing of the war as part of a broader conflict with the west has drawn the two countries closer. Russia is a useful partner in China’s efforts to push back against the US “hegemon”, analysts say. Russia’s powerful security council secretary Nikolai Patrushev gave full-throated backing for Beijing’s stance on Taiwan when meeting China’s top diplomat Wang Yi last month.

“For Russia, the limitations that existed before are gone,” Gabuev said. “Putin is obsessed with this war, and the partnership brings him a lifeline to the economy, critical components for his military machine, and China a tool to push back against the US — because the enemy of my enemy is my friend.”

Beijing and Moscow’s deepening ties led US secretary of state Antony Blinken to warn last month that any material Chinese support for Russia’s military would have “serious consequences” for relations with the US.

China has responded that the west is fuelling the conflict with its arms sales to Ukraine. “China was not the cause of or catalyst of the Ukraine crisis, nor did it provide weapons to any party in the conflict,” Qin Gang, China’s foreign minister, said this month.

Yet while relations with Russia remain important, China has a limited opportunity if it wants to stabilise ties with bigger trading partners in the west.

Xi will have a chance to meet US president Joe Biden at two summits this year but with a US election next year the chances of further rapprochement with Washington will be limited. And while several European leaders including French president Emmanuel Macron plan to visit China this year, the success of these meetings will be coloured by how far Xi backs Russia in Ukraine.

For this reason, Beijing’s efforts to paint itself as a mediator are important, analysts say. China this month enjoyed a rare success in conflict resolution when it brokered a deal to restore diplomatic relations between Iran and Saudi Arabia.

Solving the Ukraine conflict would be far harder, analysts say. China’s position paper last month failed to condemn the Russian invasion and contained thinly veiled criticisms of the west and Nato.

China “lacks the status of an impartial mediator in the Ukraine conflict because of its substantial support of Russia”, said Leif-Eric Easley, a professor of international studies at Ewha University in Seoul. “For China to be helpful, it should not suggest what Kyiv can compromise but rather find a face-saving way for Moscow to pull back forces.” 

Contact between Xi and Zelenskyy would represent a concession from China to western scepticism. But any contact was likely to be virtual rather than in-person and the results inconclusive, analysts said, as Xi sought to balance China’s desire to play peacemaker against giving any ground to the US.

Beijing viewed the Ukraine conflict as a proxy struggle pitching Russia against Nato and the US and “Zelenskyy lacks decision-making power”, said one expert at a Chinese think-tank in Beijing.

“All he [Zelenskyy] can do is to forward the message to Joe Biden. President Xi has no need to endorse Zelenskyy by meeting him in person. China respects Ukraine’s interests. But that’s different from prioritising US interests.”

Swiss authorities engineer a deal that will combine the country’s two largest banks

UBS has agreed to buy Credit Suisse after increasing its offer to more than $2bn, with Swiss authorities poised to change the country’s laws to bypass a shareholder vote as they rush to announce a deal before Monday.

The all-share deal between Switzerland’s two biggest banks is set to be announced as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, all but wiping out the target’s shareholders, three people with direct knowledge of the situation said.

UBS will now pay more than SFr0.50 a share in its own stock, up from a bid of SFr0.25 earlier today worth around $1bn that was rejected by the Credit Suisse board, the people said. But the price remains far below Credit Suisse’s closing price of SFr1.86 on Friday

The Swiss National Bank has agreed to offer a $100bn liquidity line to UBS as part of the deal, according to two people familiar with the matter.

UBS has also agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump, they added. The material adverse change clause applies for the period between the signing and closing of the deal, the people said.

There has been limited contact between the two lenders and the terms have been heavily influenced by the Swiss National Bank and regulator Finma, the people said. The US Federal Reserve has given its assent to the deal, they added.

However, some of the people criticised the plans to circumvent normal corporate governance rules by preventing a UBS shareholder vote.

Vincent Kaufmann, chief executive of Ethos Foundation, which represents Swiss pension funds that own between 3 per cent and 5 per cent of Credit Suisse and UBS, told the Financial Times that the move to bypass a shareholder vote on the deal was poor corporate governance.

“I can’t believe our members and UBS shareholders will be happy about this,” he said. “I have never seen such measures taken; it shows how bad the situation is.” 

Both sides have been locked in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide it with an emergency SFr50bn ($54bn) credit line.

When this backstop failed to arrest a fall in its share price and stop panicked clients from withdrawing their money, the central bank stepped in to force a merger after becoming concerned about the viability of the country’s second-largest lender.

Deposit outflows from Credit Suisse topped SFr10bn a day late last week, the FT has reported. Customers withdrew SFr111bn from the group in the final three months of last year.

On Saturday night, the Swiss cabinet assembled in the finance ministry in Bern for a series of presentations from government officials, the SNB, Finma and representatives of the banking sector.

The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders so the deal can be sealed immediately, the people said.

The framework of the deal has been designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed about the matter said. Swiss authorities have already secured preapproval from relevant regulators in the US and Europe, which are expected to issue co-ordinated statements today.

UBS will dramatically shrink Credit Suisse’s investment bank, so that the combined entity will make up no more than a third of the merged group, two of the people said.

Negotiators have given Credit Suisse the code name Cedar and UBS is referred to as Ulmus, according to people briefed on the matter.

As part of the deal, the FT earlier reported that UBS was seeking concessions and protections from the government, particularly from any pending legal cases and regulatory investigations into Credit Suisse that could result in fines or losses. However, it is unlikely it will get indemnity from any losses on assets, one of the people involved said.

UBS also wants to be allowed to phase in any extra demands it would face under global rules on capital that govern the world’s biggest banks.

The deal with UBS comes just months after the Saudi National Bank and the Qatar Investment Authority injected close to SFr3bn into Credit Suisse as part of a SFr4bn capital raise. They are the bank’s two largest shareholders and jointly own 17 per cent of the stock.

The SNB, UBS, Credit Suisse and Finma declined to comment.

Louis Vuitton generates more than half of LVMH’s profits and is the world’s No. 1 luxury brand by revenue. Under the bold new command of Pietro Beccari, who drove impressive growth at Dior, and before that at Fendi, expectations are that change is on the cards. The Italian luxury veteran took over the executive reins of the French luxury powerhouse a month-and-a-half ago.

Since the appointment of singer Pharrell Williams as Louis Vuitton’s new menswear designer last month, all eyes are now on Nicolas Ghesquière. The French designer has been the creative director at Louis Vuitton’s womenswear for nearly a decade. Is it time for him to move on? Miss Tweed has the details.

Beccari is regarded as a man who likes to move fast and is quite hands-on when it comes to managing operations. He has a reputation for driving his teams to beat expectations. Weakest members fall by the wayside and leave. Only the strongest survive his energetic style of management. However, industry sources say Beccari is a wonderful and inspiring boss. He may get his staff to work hard, but he also takes good care of them. Several of his closest associates wished to follow him at Louis Vuitton but such moves have been vetoed by LVMH CEO and controlling shareholder Bernard Arnault.

“No transfers allowed,” is what senior Dior managers were told, one source close to LVMH explained to Miss Tweed on condition of anonymity. Whether they like it or not, they will have to work for Bernard Arnault’s daughter Delphine, who became CEO of Christian Dior Couture in February. Delphine Arnault is known for having a strong eye for products, but she does not have the charisma or the warmth of Beccari, insiders say. Arnault is wise to insist that the teams Beccari built and trained stay where they are. Delphine Arnault will need their help.

So what will happen toNicolas Ghesquière? There has long been speculation that the French designer could leave this year and be replaced by Jonathan Anderson, who has been doing wonders at LVMH’s Loewe. Such talk has been around since 2016, as Reuters reported. “Anderson has breathed new life intoLoewe, he has really made the brand more modern, intellectual and fresh,” a Paris-based head-hunter who declined to be identified told Miss Tweed. Anderson also helped Loewe build closer ties with the art world. The 38-year-old British designer also works for his own brand, JW Anderson, which is backed by LVMH. He is one of a few promising young designers LVMH has taken under its wing and invested in, gambling that they could design for one of the group’s bigger brands one day.

One former senior Louis Vuitton executive put it more bluntly: “If I was Beccari, I would hire Jonathan Anderson immediately as he would be great for the brand. He would also sit better with Pharell. But I have no concrete information as to whether this is on the cards or not.”

Several sources at LVMH said the same thing. It is not clear whether Anderson could definitely replace Ghesquière. However, such a move could take place in the near-to-medium term.

Anderson has been at Loewe for 10 years and has done a superb job driving the brand’s exponential growth. Loewe’s annual revenues are now estimated to be above €1 billion. The brand’s wholesale revenues have doubled in the past three-to-four years, one manager who works at Loewe said on condition of anonymity.

If Anderson were to leave to join Louis Vuitton, it would be catastrophic for Loewe. However, the stakes are higher for Louis Vuitton. There is more to be won at Louis Vuitton, which makes 22 billion euros in annual sales, than at Loewe, which generates a fraction of that amount. Delphine Arnault is said to be fond of Anderson but she is also the person who hired Ghesquière for Louis Vuitton. Before joining Louis Vuitton, Ghesquière did a sterling job of revamping Kering’s Balenciaga brand. Now that Delphine has left Louis Vuitton, where she was vice-president in charge of products, she is no longer in a position to protect Ghesquière. However, she still has a lot of influence over creative direction at Louis Vuitton.

A few years ago, there was recurring speculation that Ghesquière might launch his own brand with LVMH’s backing. “There was a lot of talk about this,” said one French designer who used to work closely with Ghesquière. “He hesitated a lot, and in the end, it never happened.” Like many industry insiders, the designer expects Beccari to appoint a new designer in the next six months to a year. However, if Anderson is chosen, it would not be an easy move for him, the designer said, even though he has made no secret of the fact that it is his dream job. “You need to have broad shoulders. Louis Vuitton is a huge machine.

Another source close to LVMH said: “Anderson would have much less freedom at Louis Vuitton than he has at Loewe.” Anderson is strong not only in ready-to-wear, but also in leather goods, which generate much higher margins than the former. He has created for Loewe many best-sellers including a little elephant-shaped tote – which has been copied by many rivals – and the Puzzle bag with distinctive geometric lines and cuboid shape. Anderson has also been responsible for several collaborations that have helped keep Loewe in the news. A recent high-profile partnership was with the Japanese animated film Howl’s moving castle. Anderson created bags and ready-to-wear inspired by the film’s characters – just like he does when his own brand JW Anderson partners with other Japanese cartoons. Supported by gigantic installations at major retailers and boutiques around the world, Loewe’s collaboration with Howl’s Moving Castle was a hit, industry sources said.

Anderson is an imaginative designer who would certainly bring a light and human touch to Louis Vuitton. Ghesquière’s world is much more serious and urban, inspired by science fiction. The French designer takes his inspiration from Japanese Manga women who have elongated silhouettes. His latest fashion show earlier this month did not get particularly strong reviews. In fact, sources close to LVMH say his clothes do not sell well. “Ghesquière is futuristic and passionate about science fiction but it’s clear that sci-fi does not sell clothes,” one former senior Louis Vuitton manager admitted.

That’s OK, investors would say, because women’s ready-to-wear represents less than 5 percent of Louis Vuitton’s total sales. However, Ghesquière’s spectacular shows and his clothes, which consistently try out new fabrics and feature inventive curves and shapes, help keep the brand in the news.

Anderson has long been regarded as a strong candidate to succeed Ghesquière. When Ghesquière found this out about five or six years ago, he stopped inviting Anderson to his shows, according to someone who worked for Ghesquière. “It’s not because Anderson is doing a great job at Loewe that he would necessarily work for Louis Vuitton,” a source close to LVMH said. “And if Nicolas was not good, he would not have stayed so long.” The source confirmed that there was no immediate plan for Ghesquière to leave.

Under Ghesquière, Louis Vuitton’s sales have more than doubled in the past 10 years and the brand has gone from strength to strength. One risk now is ubiquity, analysts say. Louis Vuitton has been opening more and more boutiques in recent years. That means that if you are in the shopping mecca of a major city, you are bound to pass at least one or several Louis Vuitton boutiques. Critics say it is time that Louis Vuitton introduced a new concept for its boutiques which are starting to look dated. Beccari will have to take care of that.

It is also hoped that Beccari will help Louis Vuitton renew its historical ties with the world of travel. Under his predecessor Michael Burke, the brand ended its sponsorship of the America’s Cup sailing competition and he was not very enthusiastic about Louis Vuitton’s publishing activities. These were led by Julien Guerrier, who put an end to his life in January, as Miss Tweed reported. Guerrier, who had a personal connection to Louis Vuitton having started his professional life there as an intern, left last summer because he felt under-appreciated by the brand’s executives, several people close to him said. Guerrier jumped ship to help rival Chanel develop its own publishing venture 7L. Louis Vuitton did not issue a press statement thanking Guerrier for his work. It confined itself to providing a few words in response to requests from some journalists.

Photo and art books, together with Louis Vuitton’s famous city guides, feed the brand’s soft power. They give Louis Vuitton a human face. They support Bernard Arnault’s theory that luxury is about culture. Guerrier was replaced by Axelle Thomas who was “content and creative manager” at LVMH and is relatively unknown in Paris’ uptight literary world. Julien Guerrier had become a superstar and managed to build Louis Vuitton into a respected publishing house, even though the brand’s communications department was not very supportive of his initiatives and generally made life difficult for him, several industry sources said. It is not clear what will happen to Louis Vuitton’s publishing activities from now on.

When Beccari became CEO at Dior in 2018, the brand’s women’s creative director, Maria Grazia Chiuri, had been in place for two years. Even though Beccari and Chiuri famously did not get along, Chiuri stayed. She is one of only a few designers working for a major European luxury brand to have a contract with an unspecified end date. Most designers have three- or five-year contracts that can be ended or renewed. Ghesquière has already renewed his contract at Louis Vuitton several times. Hence, there is no certainty that Ghesquière may leave soon, industry sources say, even though it is highly expected. “The market needs to first digest Pharrell,” the former senior Louis Vuitton executive said. “Too much good news kills the good news.It may not be now, but it could be announced in early 2024. I can't believe that Pietro doesn't have that in mind.”

One telling detail: No one from the Arnault family was present at the Loewe show during Paris Fashion Week. Only Sidney Toledano, head of LVMH’s Fashion Group, which includes Loewe, attended.

There is talk within LVMH’s rank and file that Toledano could leave his post by the summer. “Of course, he will stay on as adviser, but he is going to be replaced by someone who is quite strong and aggressive,” the LVMH source said, based on information from a person who works for the group’s human resources department. LVMH declined to comment. Toledano, now 71, is a member of LVMH’s executive committee and is one of Arnault’s most trusted lieutenants, having led Dior for more than 20 years.

If the Celine and Loewe brands are growing nicely, LVMH’s Fashion Group includes others that are not doing so well, such as Kenzo and Givenchy. Led by the Japanese designer Nigo, its creative director, Kenzo has taken a sharp streetwear turn that customers have not yet been embracing and supporting, industry sources say. Meanwhile, as Miss Tweed reported last year, Givenchy is struggling under its creative director Matthew Williams. He could be replaced by Paco Rabanne’s Julien Dossena this year. Ghesquière may not leave immediately butis likely to do so in the near future, and other important creative and management changes at LVMH are on the cards. Stay tuned.

Southern Sierra Nevada could see up to 2 ½ feet of snow Tuesday

The West Coast is bracing for another round of storms beginning Sunday, with wet weather expected in California through the middle of the week and the Sierra Nevada region anticipating more snow.

A first storm will roll through the Central and Northern California coast Sunday night, delivering a modest amount of rain as well as more than a foot of snow in the mountains, with little impact in the southern part of the state, according to the National Weather Service.

The next storm will hit Southern California harder beginning Tuesday morning, meteorologist Brian Hurley said, with potential flooding in low-lying areas and heavy snow at higher elevations. Coastal areas are expected to get 1 to 3 inches of rain, with the potential for flash flooding, he said. Windy conditions are also expected.

The latest bands of precipitation add to what has been a dramatic, dangerous winter in the region, with near-record snow and fatal flooding. California’s levee systems, crucial tools protecting the Central Valley farmlands and providing water to more than 20 million people, are already under strain.

The California Governor’s Office of Emergency Services said Saturday it has stationed flood rescue teams across the state, from Los Angeles County north to Sacramento County.

The addition of 1½ to 2½ feet in the southern Sierra Nevada Tuesday—and likely between 1 and 2 feet further north—makes for dangerous conditions and avalanche threats, Mr. Hurley said.

“It really can’t take much more,” he said of the region. “You’re adding more snow to areas that really don’t need any more.”

Mr. Hurley said that while it is serious, Tuesday’s storm likely won’t be as brutal as what parts of the state experienced during the last atmospheric river. The fact that there has been a break in the weather may help soften the blow, he said, as people have had time to dig out a bit. And a slower, steady rainfall in lower-lying areas this time may help prevent some of the more dramatic scenes witnessed during the torrential downpours of recent weeks, he said.

This is a messy, ugly transaction that nobody really wants — but it’s also necessary

Credit Suisse may shortly be a historic footnote. Its capital buffers meant nothing to many depositors. They went on pulling funds even after the Swiss National Bank put up SFr50bn in extra liquidity. UBS is preparing to take the time bomb for the Swiss team. Pray the countdown will stop, stalling this bank run and any others incipient across Europe.

The terms are humiliating to a Credit Suisse management team still talking a couple of days ago about its turnround plan. In its current form, this all-share takeover would be worth as little as SFr0.25 a share, roughly SFr900mn ($1bn) in total. Credit Suisse shares closed at SFr1.86 on Friday after weeks of steep declines.

Assuming the deal comes off, no one can complain about banks privatising gains and socialising losses. The Swiss authorities are intent on railroading this transaction through. Shareholders might be robbed of the chance to vote on the transaction. Almost all of the Credit Suisse equity would be wiped out, though its senior creditors would feel comforted.

The rock bottom price would give UBS some protection from unforeseen liabilities, though official deal terms have yet to be announced. There is one escape clause: the deal would be off if UBS credit default spreads rose 100 basis points or more before deal close. That swing seems entirely possible if negotiations drag on into Monday.

This deal, transacted to a conventional timetable in normal financial conditions, would look like a good one for UBS. Global wealth management is a scale game. On paper, UBS has around $4tn in client investment assets and Credit Suisse about $900bn. The latter figure will inevitably be lower in reality. The enlarged UBS would still be “Europe’s champion asset gatherer,” according to one M&A banker.

The nominal takeover price is way below Credit Suisse’s year-end 2022 tangible book value of SFr41.8bn. That would create so-called negative goodwill (“badwill”), according to Autonomous analysts. Despite its name, this is a positive phenomenon. Over time, some or all of that amount could be written up in the combined banks, assuming that markets return to normal.

UBS needs a cushion because some of Credit Suisse’s SFr35.3bn of common tier one capital buffer is questionable. On paper, the two banks have plenty of common tier one capital: over 14 per cent of risk weighted assets.

At last month’s full-year results, Credit Suisse targeted a 13 per cent CET1 ratio (against its risk-weighted assets) by 2025. On current data, that suggests UBS needs a minimum of almost SFr33bn of CET1 capital to cover Credit Suisse. UBS may need to supplant some of what Credit Suisse has.

Restructuring expenses would eat into profits from the combined bank. Credit Suisse’s underlying expense base is about SFr7bn. Integrating Credit Suisse’s 50,000 plus full-time employees will be painful for both sides. Already, 9,000 of Credit Suisse jobs are expected to go. That number could double, causing political headaches in Switzerland.

The new UBS would have to prepare for a storm of potential litigation too. It is unclear whether the Swiss government is indemnifying the cost of this.

This would be messy, ugly transaction that nobody really wants. It also appears necessary. But whether it would halt European bank runs is unknowable. Reassurance is a dangerous game in a financial panic. It can as easily confirm the fears of investors as allay them. Broader action from central banks may still be required.