UBS acquiring Credit Suisse is 'no bailout' says Swiss finance minister — but top economist Mohamed El-Erian disagrees
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- Switzerland's finance minister said UBS' $3.25 billion acquisition of Credit Suisse is not a bailout.
- Top economist Mohamed El-Erian disagrees and told Bloomberg TV it is a bailout.
- The Bern-brokered deal comes with government guarantees and liquidity provisions.
The Swiss government has avoided using the word bailout amid UBS' deal to acquire Credit Suisse — but top economist Mohamed El-Erian has a different opinion.
"Yeah, it was a bailout," El-Erian told Bloomberg TV Sunday. "The phrase 'bailout' has become such an awful phrase that everybody is avoiding it. They're going out of their way to say that it's not a bailout, but then they can't explain why money's being put to work."
The UBS and Credit Suisse deal — worth 3 billion Swiss francs, or $3.25 billion — comes with government guarantees and liquidity provisions. In particular, the Swiss government is guaranteeing UBS will get up to 9 billion Swiss francs if they incur losses from certain assets. The Swiss National Bank is also providing 100 billion Swiss francs in liquidity support to both banks.
"It's full of contradictions," El-Erian told Bloomberg TV. "It's a private sector solution, but has government intervention. It's not clean, but of the available options, this was the best one that they could have had."
El-Erian, who is the chief economic advisor to Allianz and the president of Queens' College at Cambridge University in the UK, was referring to several other options for Credit Suisse — including nationalization and winding up the business.
His assessment of the government-brokered merger is at odds with Swiss finance minister Karin Keller-Sutter's view, who stressed how the UBS acquisition is a "commercial solution."
"This is no bailout. This is a commercial solution because UBS is taking over Credit Suisse," Keller-Sutter said at a press conference in Bern on Sunday.
"It's not money we give to credit Swiss or UBS so we find that this solution is the best solution, and I hope it will also be welcomed by other jurisdictions," she added.
Keller-Sutter also said on Sunday that letting the bank go bankrupt could hit the Swiss and international financial systems badly.
"The bankruptcy of Credit Suisse would have had a huge collateral damage - on the Swiss financial market also internationally," she said.
The merger of the two Swiss banks came after a wild week for the banking sector — Silicon Valley Bank was shut down by regulators on March 10, spurring jitters of a contagion that could lead to a broader economic crisis.
It's also worth noting that back in 2008, Switzerland had bailed out UBS amid the Global Financial Crisis, which angered the Swiss public.
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