UBS – Credit Suisse: ‘ramifications’ of precipitated deal

We don’t know if we last saw her on Sunday Banking crisis in 2023What we do know for sure is that investors hate changing the rules of the game as they see fit: 100% discounts on mortgage bonds and their value to zero as opposed to equity holders who even saved up some of their value. , is one of the new data recorded in this new banking crisis.

Why should he do what happened – again – exactly what is hidden behind the numbers on the banks’ balance sheets. The second reference is Final passage to the general assembliesWhen situations are urgent, corporate decision-making bodies go for a walk. It is not important to discard traditional mechanisms even under time pressure as a risk.

So the problem is up to the supervisor. The strict capital adequacy rules for banks did not foresee a “gap” explaining what exactly the liquidity that banks show on their balance sheets is about. For example, if interest-bearing bonds are considered instantly liquidable securities, the law has shown that due to the increase in interest rates, their value varies (a sign of the market) when we are talking about distant maturities.

the Swiss credit It has fluidity (liquidity coverage ratio) 150%, That is, it can cover its immediate needs for 30 days by 1.5 times. However, only 50% of the liquidity was deposited in cash at central banks, and the rest was government bonds with a rating risk, so LCR ratios assumed less liquidity in reality.

So we are re-entering a new banking regulation process, which is Basel 3 +. Logically, the designation “liquidity” will acquire a new interpretation that is much closer to the reality on both sides of the Atlantic. This arrangement would not leave banks’ balance sheets intact: reducing interest-bearing liquidity would limit return on capital.

condition endurance test With greater intensity, in addition to asset quality, it may also change the valuation of homes that monitor bank debt. A lower rating means a higher cost of issuing bonds, but also a different treatment in the conclusion of financing from central banks.

This “hierarchical bypass” would increase the cost of issuing subprime bonds even if history writes that this was a one-time exception involving a bank outside the ECB’s supervisory jurisdiction. Given that Greek banks will have to issue €8.5 billion in bonds by 2025 to meet MREL adequacy ratios, issuing them will become more expensive, and therefore the estimated interest income will be slightly lower. The question is, of course, when this market will reopen, as it will take some time to restore confidence, which will likely come with more guarantees from the banks.

The good news for Greek banks Is that they are in a period where they can’t be considered anything but leverage. Overall, Greek banks are moving at the end of 2022 with a leverage ratio of 69%, which is the lowest we have seen in two decades when in its glorious moments it reached 146%. In this regard at least we can consider the banking system to be light years away from what happened to CS and SVB.

Moreover, the expected profitability for this year makes them able to comfortably absorb the increase in interest from the bonds they will issue without worrying about the performance of their money. On the other hand, Greek banks are being compared with the valuations of banks in Europe, which are not in the best shape at the moment. This would cap the valuation range (currently P/TBV 0.73x) and likely be lower than the recent crashes we’ve seen.

Looking further, the results of this case will also be seen in the results of the first quarter: who had CS bonds and stocks in their portfolio, how many losses were written by those with other banks’ bonds in their portfolios, and what additional information the ECB will have from the banks included in their results. It will take some time for all of these uncertainties to be incorporated into the assessments, affecting the group of Greek regulars accordingly, tempering the initial pleasant picture that has prevailed since the beginning of the year.