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Post by Norbert on Mar 18, 2023 12:12:52 GMT
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Post by uncleharley on Mar 18, 2023 12:26:34 GMT
WOW!!! Too big to be rescued??? That is a new thought, at least in this country. I wonder what, if any effect that will have of the value of the Swiss Franc.
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Post by chang on Mar 18, 2023 12:31:57 GMT
How can this not be good (long term) for UBS. Yet, UBS has been punished along with the entire sector. I am holding fast my UBS position. I’ll look for an invitation to add to it, but such invitations usually aren’t clear until long after the party has started.
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Post by yogibearbull on Mar 19, 2023 17:33:14 GMT
UBS buys CS for $2 billion + SNB lifeline of $100 billion.
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Post by habsui on Mar 19, 2023 19:39:57 GMT
I still have a (small) checking account at UBS back in Switzerland. I'm sure that stabilized the situation. All I know is that UBS will be huge. Not sure whether it will be similar in size to JPM.
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Post by roi2020 on Mar 19, 2023 21:47:46 GMT
Credit Suisse Importance
"The bank ranks among the world's largest wealth managers and crucially it is one of 30 global systemically important banks, whose failure would cause ripples through the entire financial system."
"Credit Suisse has a local Swiss bank, wealth management, investment banking and asset management operations. It has just over 50,000 employees and 1.3 trillion Swiss francs in assets under management at the end of 2022, down from 1.6 trillion a year earlier."
"With more than 150 offices in around 50 countries, Credit Suisse is the private bank for a large number of entrepreneurs, rich and ultra rich individuals and companies."
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Post by yogibearbull on Mar 20, 2023 0:15:48 GMT
You may hear about the controversial wipeout of $17 billion CS AT1/CoCo bonds. These (AT1) bonds are contingent-convertible (CoCo) bonds common in Europe and Asia. In good times, these convert into equity. But in bad times, forced conversion can be done at loss, or the entire amount could be written down. So, they pay higher-yields. These count as Tier 1 capital. What confused the investors in Europe was that AT1/CoCo bonds are ABOVE the common stock in the capital structure. So, how can there be ANY equity left, but ZERO for AT1/CoCo bonds? That is where the Swiss Government stepped in - it said, "because it says so". Oops! There goes an entire bond structure (CoCo) down the tube! This category may be damaged. They aren't used in the US. But to count as Tier 1 in the US, a bank convertible in the US must be noncumulative. www.fidelity.com/news/article/top-news/202303191646RTRSNEWSCOMBINED_KBN2VL0GX-OUSBS_1
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Post by johnsmith on Mar 20, 2023 0:50:27 GMT
You may hear about the controversial wipeout of $17 billion CS AT1/CoCo bonds. These (AT1) bonds are contingent-convertible (CoCo) bonds common in Europe and Asia. In good times, these convert into equity. But in bad times, forced conversion can be done at loss, or the entire amount could be written down. So, they pay higher-yields. These count as Tier 1 capital. What confused the investors in Europe was that AT1/CoCo bonds are ABOVE the common stock in the capital structure. So, how can there be ANY equity left, but ZERO for AT1/CoCo bonds? That is where the Swiss Government stepped in - it said, "because it says so". Oops! There goes an entire bond structure (CoCo) down the tube! This category may be damaged. They aren't used in the US. But to count as Tier 1 in the US, a bank convertible in the US must be noncumulative. www.fidelity.com/news/article/top-news/202303191646RTRSNEWSCOMBINED_KBN2VL0GX-OUSBS_1Damn! Thanks for posting some useful nuggets!
Appreciate it.
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Post by roi2020 on Mar 20, 2023 6:46:06 GMT
You may hear about the controversial wipeout of $17 billion CS AT1/CoCo bonds. These (AT1) bonds are contingent-convertible (CoCo) bonds common in Europe and Asia. In good times, these convert into equity. But in bad times, forced conversion can be done at loss, or the entire amount could be written down. So, they pay higher-yields. These count as Tier 1 capital. What confused the investors in Europe was that AT1/CoCo bonds are ABOVE the common stock in the capital structure. So, how can there be ANY equity left, but ZERO for AT1/CoCo bonds? That is where the Swiss Government stepped in - it said, "because it says so". Oops! There goes an entire bond structure (CoCo) down the tube! This category may be damaged. They aren't used in the US. But to count as Tier 1 in the US, a bank convertible in the US must be noncumulative. www.fidelity.com/news/article/top-news/202303191646RTRSNEWSCOMBINED_KBN2VL0GX-OUSBS_1
From John Authers' Points of Return newsletter today:
“'Additional Tier 1' capital was a category introduced under the Basel III banking accords that followed the GFC, with the intention of providing banks with more security. Holders of the bonds were to be behind other creditors in the event of problems. In the first big test of just how far behind they are, we now know that AT1 bondholders come behind even shareholders."
"Credit Suisse’s roughly 16 billion Swiss francs ($17.3 billion) worth of risky notes are now worthless. The deal will trigger a complete writedown of these bonds to increase the new bank’s core capital — meaning that these creditors have had a worse deal than shareholders, who at least now have some stock in UBS."
"This follows the logic of the post-crisis approach, and it limits moral hazard. The question is whether anyone will want to hold AT1 bonds after this. The market response will be fascinating, and it remains possible that the regulators have avoided repeating one mistake only to make a new one."
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Post by chang on Mar 20, 2023 9:27:33 GMT
UBS opened down > -10%. :-(
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Post by Norbert on Mar 20, 2023 11:11:40 GMT
Recovering at this hour, but it's a long road. The Credit Suisse bondholders got wiped out; the effect of that decision is unknown, but it's unsettling.
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Post by johnsmith on Mar 20, 2023 12:41:48 GMT
I have been wondering about that; equity gets 3 Billion, bonds get wiped
and I feel 2 things: - this is a lawsuit waiting to happen, somebody's got to cry - "injustice". - I think the swiss govt. decided to let the shareholders have something, because of who they are; I think the Saudis recently invested $3 billion or so.
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Post by FD1000 on Mar 20, 2023 13:29:30 GMT
( seekingalpha.com/article/4588498-credit-suisse-and-ubs-implications-of-a-shotgun-wedding?mailingid=30888313&messageid=must_reads&serial=30888313.898173). Credit Suisse And UBS: Implications Of A Shotgun Wedding The Credit Suisse (NYSE:CS) meltdown is threatening to spill over into a systemic crisis affecting the global financial system at a time when the U.S. banking system is already highly stressed in the wake of the Valley SVB Financial Group (SIVB) and Signature Bank (SBNY). Therefore it is not a huge surprise that The Swiss National Bank ("SNB") and regulator FINMA are looking to orchestrate a shot-gun wedding this weekend as reported by the FT. It is also clear that last week's intervention by the SNB did not allay the fears or stem the outflows from Credit Suisse. The Swiss banking industry could unravel very quickly and there is little doubt that the Swiss authorities have to intervene and quickly. It appears that this weekend, a deal is going to get done.
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Post by Chahta on Mar 20, 2023 14:02:27 GMT
I have been wondering about that; equity gets 3 Billion, bonds get wiped and I feel 2 things: - this is a lawsuit waiting to happen, somebody's got to cry - "injustice". - I think the swiss govt. decided to let the shareholders have something, because of who they are; I think the Saudis recently invested $3 billion or so. That is the nature of bonds and debt investing we all live with. I wonder if their debt was considered "junk" before now?
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Post by newtecher on Mar 20, 2023 14:31:06 GMT
I have been wondering about that; equity gets 3 Billion, bonds get wiped and I feel 2 things: - this is a lawsuit waiting to happen, somebody's got to cry - "injustice". - I think the swiss govt. decided to let the shareholders have something, because of who they are; I think the Saudis recently invested $3 billion or so. There will probably be lawsuits but FT says the possibility of equity being prioritized over these coco bonds was right in the bond prospectus: Investors’ complaints came despite the fact that Credit Suisse’s bond documentation made it clear that Swiss regulators could alter the traditional order in which creditors or shareholders were repaid. Finma “may not be required to follow any order of priority, which means [AT1 bonds] could be cancelled in whole or in part prior to the cancellation of any or all of [Credit Suisse’s] equity capital”, the prospectus said.
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Post by johnsmith on Mar 20, 2023 15:12:11 GMT
I have been wondering about that; equity gets 3 Billion, bonds get wiped and I feel 2 things: - this is a lawsuit waiting to happen, somebody's got to cry - "injustice". - I think the swiss govt. decided to let the shareholders have something, because of who they are; I think the Saudis recently invested $3 billion or so. There will probably be lawsuits but FT says the possibility of equity being prioritized over these coco bonds was right in the bond prospectus: Investors’ complaints came despite the fact that Credit Suisse’s bond documentation made it clear that Swiss regulators could alter the traditional order in which creditors or shareholders were repaid. Finma “may not be required to follow any order of priority, which means [AT1 bonds] could be cancelled in whole or in part prior to the cancellation of any or all of [Credit Suisse’s] equity capital”, the prospectus said. I guess then it's legal! No tears should be spilt
This will (or should at any rate) make these CoCo bonds a lot more expensive for all banks going forward.
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Post by chang on Mar 21, 2023 7:26:33 GMT
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Post by anitya on Mar 21, 2023 7:51:12 GMT
Just laziness! People make all sorts of excuses instead of admitting to themselves about their inertias. If you do not stick it out in relationships hoping the other person will change their unintelligent ways, then why do you wait and hope your portfolio company management is going to change their ways? A good value manager instinctly knows the difference between value and value trap. Discl: I do not own any from that shop.
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Post by chang on Mar 21, 2023 8:28:02 GMT
anitya I’m not sure if you recall that Nygren from OAKLX/OAKMX got sucked into the WM implosion in 2008/9. He loved the stock right down to the bottom. You would think Oakmark would have learned from that.
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Post by Norbert on Mar 21, 2023 8:56:32 GMT
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Post by mnfish on Mar 21, 2023 12:23:28 GMT
"Switzerland's standing as a financial centre is shattered," Octavio Marenzi, CEO of Opimas, said in a research note. "The country will now be viewed as a financial banana republic."
The European Central Bank and Britain's Bank of England both sought to distance themselves from FINMA's decision.
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Post by bobfl on Mar 21, 2023 14:18:15 GMT
I thought it was unfortunate that the Norwegian pension fund and the middle east owners lost so much in the AT1 bonds, but the bonds are designed to be the first to go in a bank default. So a surprise, but not really. Now we are seeing that PIMCO is facing an $807 loss from these (per Bloomberg) and Invesco $370 and Blackrock about $100 million. But that is only about $1.3 billion of the $17 billion of what was considered plain vanilla (but potentially high-risk) bonds. When I heard they were, previous to this failure, considered plain vanilla, it reminded me of when subprime loans were packaged and called "AAA".
Or another recent example, First Republic was rated BBB until last week when S&P dropped it quickly, after the fact, to junk, B+.
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Post by FD1000 on Mar 21, 2023 14:37:57 GMT
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Post by bobfl on Mar 21, 2023 14:53:29 GMT
Per Bloomberg, PIMCO is facing an $807 loss from these . So it is a min, max headline. One day we will know. The interesting thing to me is where else are the losses. There is such a demand for yield that when I see an IPO for credit, I see institutionals grab them so fast, I can only get them if I am lucky. They load up at the offering then can't dump them in a crisis because they own too much. The big money underwrites many IPOs to get their huge share. Then they cannot unload them as they watch them spiral down the drain.
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Post by chang on Mar 21, 2023 15:03:28 GMT
PIMCO manages $1.74 trillion. So that's 340,000,000 / 1,740,000,000,000 = 0.02%. Not a needle mover. Nevertheless, for a company that's supposed to have the best bond analysts in the world, it's bad. Considering: (1) CS has been in serious financial trouble for over a year, and (2) AT1 bond holders ranked behind equity holders (hence, basically in the ditch, behind the port-a-potties, behind the road, behind the parking lot, behind the building, behind the equity holders), one wonders why anyone would own these.
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Post by FD1000 on Mar 21, 2023 15:12:49 GMT
PIMCO manages $1.74 trillion. So that's 340,000,000 / 1,740,000,000,000 = 0.02%. Not a needle mover. Nevertheless, for a company that's supposed to have the best bond analysts in the world, it's bad. Considering: (1) CS has been in serious financial trouble for over a year, and (2) AT1 bond holders ranked behind equity holders (hence, basically in the ditch, behind the port-a-potties, behind road, behind the parking lot, behind the building, behind the equity holders), one wonders why anyone would own these. +1 Exactly my point. A couple of years ago Pimco invested in Argentina bonds and they collapsed too.
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Post by Norbert on Mar 21, 2023 15:13:15 GMT
PIMCO manages $1.74 trillion. So that's 340,000,000 / 1,740,000,000,000 = 0.02%. Not a needle mover. Nevertheless, for a company that's supposed to have the best bond analysts in the world, it's bad. Considering: (1) CS has been in serious financial trouble for over a year, and (2) AT1 bond holders ranked behind equity holders (hence, basically in the ditch, behind the port-a-potties, behind road, behind the parking lot, behind the building, behind the equity holders), one wonders why anyone would own these. That's easy. Last year CS's AT1 bonds yielded 9.75%. Some people live for yield. What could go wrong?
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Post by bobfl on Mar 21, 2023 15:17:52 GMT
PIMCO manages $1.74 trillion. So that's 340,000,000 / 1,740,000,000,000 = 0.02%. Not a needle mover. Nevertheless, for a company that's supposed to have the best bond analysts in the world, it's bad. Considering: (1) CS has been in serious financial trouble for over a year, and (2) AT1 bond holders ranked behind equity holders (hence, basically in the ditch, behind the port-a-potties, behind road, behind the parking lot, behind the building, behind the equity holders), one wonders why anyone would own these. Good point. But these bonds are specifically designed to be the first to fail. Some of the other CS bonds were safe. Credit instruments are in such demand at the IPO that institutionals grab anything they can get. They have such huge volumes of cash coming in that has to be invested. Generally not a problem, but this happens.
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Post by bobfl on Mar 21, 2023 15:22:08 GMT
That's easy. Last year CS's AT1 bonds yielded 9.75%. Some people live for yield. What could go wrong?
Correct! :-) Last year one very large pension fund said they needed 7%. I thought, "Good luck with that. Quality will get you only 5-5.7%." So they travel further out the risk spectrum.
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Post by chang on Mar 21, 2023 16:56:05 GMT
Wow, from Monday morning's open through today's close in Zurich - two days - UBS rose 35%. (Click chart below.) I own a fair position. Wish I'd added at yesterday's open, but this volatility has been crazy. Actually, UBS falls way below my desired dividend threshhold. I only bought it last year because it was a stolid, reliable, blue-chip stock in an industry (Swiss banking) with little fanfare or drama.
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