Raiding The Taxpayer Piggy-Bank, Part 1
Talk about the deaf leading the blind to rescue the halt. Over the weekend, UBS, which lost the staggering sum of $20 billion in 2008 and had to be bailed out, joined up with the Swiss central bank, which posted an incredible net loss of -$143 billion in 2022, to rescue the corpse of Credit Suisse, which over recent years fell for practically every dumb investment and mega-con artist on the planet.
And with respect to the latter, we do mean corpse. Despite starting with $830 billion of assets at the end of 2015 and benefiting from seven years of ultra-cheap deposit costs, Credit Suisse managed to post a cumulative loss of -$6.4 billion over the period.
That’s right. During an era when the central banks were literally paving the hallways of banks with gold by inflating assets to a fare-the-well and pushing the cost of deposits down to the zero bound, the revolving door of fools in the C-suite at Credit Suisse (CS) generated a nearly continuous flood of red ink.
So, naturally, the central bankers and governments of the world where not about to let Mr. Market have his way with this inferno of financial incompetence. As it happened, Mr. Market almost did, sending the CS market cap from a peak of $90 billion in May 2007 nearly to the circular drain at $5.2 billion as of the market close on Friday.
But the even greater fools who run the Swiss central bank and their compatriots at the EC and Fed were unwilling to let the last $5 billion of CS market cap be finished off at today’s market open. Because, well, the bogeyman of “financial instability”. Again!
In fact, their desperate lurching knew no bounds. They first denied the long-suffering shareholders of UBS even their customary vote on the shotgun merger. Then they wiped out some $17 billion in Credit Suisse AT1, aka Contingent Convertible bonds, while saving the junior common stock.
And for good measure they tossed in a $100 billion liquidity line to the merged entity, even as they supplied it with a $9 billion loss protection guarantee after a $5 billion loss corridor.
As to the former gift, the Swiss government’s liquidity backstop computes to $11.5 million for each of the nation’s 8,654,622 men, women and children. That is, after the weekend’s bailout bacchanalia, every family of four is now backstopping this motley crew of bankers to the tune of $50 million.
Keep reading with a 7-day free trial
Subscribe to David Stockmans Contra Corner to keep reading this post and get 7 days of free access to the full post archives.