Saudi National Bank chairman Ammar Al Khudairy’s comments last week may have been one of the most expensive answers ever delivered on television.
On Sunday, UBS announced it would take over rival Credit Suisse for $3.2 billion, in a deal overseen by Swiss regulators to quell financial panic. That’s less than the $8 billion the bank had on the market on Friday.
Saudi National Bank, Credit Suisse’s largest shareholder, will see the price of its shares, which it bought for $1.5 billion in October, drop by $1.2 billion after the UBS deal, according to Bloomberg.
Ammar al Khudairy’s comments on Wednesday fueled the Credit Suisse crisis. When asked by a Bloomberg reporter whether the Saudi bank is willing to invest more money in Credit Suisse if it needs more funds, al Khudairy bluntly replied “the answer is absolutely no,” citing regulatory reasons.
“If we go beyond 10%, all the new rules will come in,” said al Khudairy, explaining why the Saudi bank will not go beyond its current share of 9.9%.
The comments rattled investors and customers of Credit Suisse, which has been reeling from bad news, including scandals, constant leadership changes, and billion-dollar losses. The Saudi National Bank itself is the largest shareholder in Credit Suisse as part of a $4.3 billion capital raise the Swiss lender is holding in 2022 ahead of a planned restructuring.
Credit Suisse shares fell 24% on the same day as Al Khudairy’s comments, and its bonds fell to distress levels. At the end of the day, Credit Suisse announced it would borrow up to $54 billion from the Swiss National Bank, the country’s central bank.
Al Khudairy later tried to walk back his earlier comments, saying that Credit Suisse had not asked for help, and that the panic his comments had caused was “unwarranted”.
The chairman of the Saudi National Bank blamed the wider banking crisis, triggered by the failure of Silicon Valley Bank, as investors jumped at his comments. “If you look at how the entire banking sector has gone down, unfortunately, a lot of people are just looking for excuses,” he told CNBC on Thursday. But he still refused to invest more into Credit Suisse, again blaming regulations.
Running again Al Khudairy ended up coming too late: When Credit Suisse’s shares recovered were below the lifeline of the Swiss central bank, depositors continued to withdraw money from the bank, forcing the Swiss government to shepherd the rescue of fellow bank UBS.
About a fifth of Credit Suisse’s shares are owned by investors from the Middle East, such as 9.9% of shares from the Saudi National Bank, and 6.8% of shares owned by the Qatar Investment Authority.
Bondholders lose even more
But equity holders like the Saudi National Bank at least got the UBS-Credit Suisse deal. Shareholders get one UBS share for every 22.48 Credit Suisse shares, which UBS calculates equals $0.82 per share. (Credit Suisse shares were trading around $2 before the weekend)
As part of the takeover of Credit Suisse, UBS wrote $17 billion in Additional Tier 1 bonds. These bonds were pioneered after the 2008 financial crisis, and were written or converted into equity if the bank’s capital buffer fell below a specified level. The $17 billion write-down is the largest in the European AT1 market since its inception.
Some Credit Suisse bondholders are angry about losing everything while shareholders are still getting paid. “It makes no sense,” Patrick Kauffman, portfolio manager at Aquila Asset Management AG told Bloomberg. “Seniority in the capital structure must be respected.”
AT1 bonds across several Asian banks fell to record lows Monday after Credit Suisse cut bonds.
Saudi National Bank and other Credit Suisse shareholders are trying to offer $5 billion in new financing to the bank, in a deal that would keep the bank’s bonds intact, the report said. The Wall Street Journal. Swiss regulators rejected the offer.
Credit Suisse shareholders, like Saudi National Bank, are out of luck if they don’t like the UBS bailout. The deal does not require approval from UBS or Credit Suisse shareholders, due to regulatory changes from the Swiss government.