'A Signal For All Bankers & Stakeholders': Uday Kotak On UBS Buying Credit Suisse

The Kotak Mahindra Bank CEO Uday Kotak said the Credit Suisse saga highlighted the importance of risk-return assessment in investments over the size of a financial institution.

Kotak Mahindra Bank managing director Uday Kotak highlighted the risk after the takeover of Credit Suisse Group AG by UBS Group AG

Source : Getty

Kotak Mahindra Bank managing director Uday Kotak on Monday said the takeover of Credit Suisse Group AG by UBS Group AG is a "signal for all bankers and stakeholders".

The Kotak Mahindra Bank CEO said the Credit Suisse saga highlighted the importance of risk-return assessment in investments over the size of a financial institution.

In a tweet, the veteran businessman said, “Credit Suisse sold to UBS for 3 bn $. 60% discount to stock value at Friday closing. ~600 bn $ balance sheet sold for 3 bn $ equity value. 17 bn $ of AT1 bonds written off. A signal for all bankers and stakeholders, when risk-return matrix is overtaken by obsession with size."

Credit Suisse sold to UBS for 3 bn $. 60%discount to stock value at Friday closing. ~600 bn $ balance sheet sold for 3 bn $ equity value. 17 bn $ of AT1 bonds written off. A signal for all bankers and stakeholders, when risk return matrix is overtaken by obsession with size.

— Uday Kotak (@udaykotak) March 20, 2023

In a move engineered by the Swiss government to prevent further market turbulence in global banking, UBS has agreed to buy rival Swiss bank Credit Suisse for 3 billion Swiss Francs ($3.23 billion), reported news agency Reuters. The deal, which is expected to close by the end of 2023, also involves UBS assuming up to $5.4 billion in losses.

The Swiss National Bank is offering 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over.

Regulator Finma said about 16 billion francs of Credit Suisse bonds, known as AT1s, will become worthless to ensure private investors help shoulder the costs.

UBS Chief Executive Ralph Hamers said UBS can handle the risks of taking over Swiss rival bank Credit Suisse, reported news agency Reuters. Hamers, who will lead the combined entity as chief executive, said UBS would be able to manage the risks that could emerge from a so-called superbank.

"We have a very good capital ratio at UBS, and we also have a very good liquidity position. So we have contained the risks in the markets," Hamers said in the interview on Monday.

"The second step for us is to transform CS's investment bank into an investment bank like UBS has. We call this a capital-light investment bank. In doing so, we are not taking so much risk."