It's game over for Credit Suisse the Historic Swiss bank has officially been Taken over now UBS arrival bank has Stepped in and bought Credit Suisse in a Dramatic Twist of events and we know Credit Suisse since being crisis moved For many months now and they are Finished but I understand this is a Lowball offer for the bank UBS is paying Only 3.25 billion for Credit Suisse and That is 60 less than what the bank was Worth just last Friday and if you are Shareholder of Credit Suisse you just Received a beating of a lifetime the Stock price is down by 90 and if you Didn't sell you will be taking a huge Discount when they convert your Positions to UBS shares and we are Talking about 0.76 Francs in UBS stock That was once worth 1.86 francs last Friday and this is the disaster for the Swiss banking system and here's the Kicker shareholders didn't even get to Vote on whether they wanted this Takeover to happen this was a rushed Deal Regulators they allowed to take Over proceed without consulting the Shareholders of either UBS or Credit Suisse and this tells us the magnitude Of the panic and how afraid the Swiss Backing system was if the deal didn't go Through they were afraid of a systemic Collapse and I wanted to recall the 54 Billion dollar Lifeline Credit Suisse
Had from the Swiss National Bank the Government was panicking that if the Bank fails the whole system would Collapse so they stepped in but it Wasn't enough investors were spooked and They decided to run away and one of the Biggest casualties of this takeover is The Saudi National Bank losing 1.2 Billion dollars on their Credit Suisse Stock and as you'll quickly see this Carnage isn't over the banking system is Now experiencing a crisis of confidence And as Jerome power keeps hiking rates Up more things are going to break in the Financial markets and what we are seeing Is trust in a system eroding and the Contagion spreading and the Swiss Government cannot let credit sues fall It could trigger got a backing meltdown Not just in Switzerland but on Wall Street as well depositors will get Spooked and even too big to fail Bank Collapses maybe Diaz might be next on The list the Swiss president himself Came out to say an uncontrolled collapse Of Credit Suisse would lead to inculable Consequences for the country and the International Financial system so Understand what just happened this was a Bailout for too big to fail Bank Credit Suisse is in the list of the gcps that Includes JP Morgan Citibank and Bank of America and this means it's a Systemically important bank and as we'll
Talk about this many times as long as You are on this list it's very likely You will get bailed out they won't let You experience a total collapse yes the Taxpayer isn't directly involved in the Credit Suisse takeover but this is a Private sector solution right but the Swiss government had to step in and work The deal over the weekend UBS didn't Really need to buy Credit Suisse they Could just let them fail and all the Business we just naturally flow through UBS over time so why did the bank decide To go ahead with it maybe it's because Of the list of guarantees the Swiss Government gave UBS the government Intervened to prevent a total collapse Of Credit Suisse and you quickly Understand why UBS decided to buy it and To assist the Takeover the government Provided UBS with a loss guarantee of up To 9 billion francs from potential Losses arising from certain assets this Means if UBS experience specific losses As a result of the Takeover the Government will compensate them but the Assistant goes further the Swiss National Bank also provides a credit Line of 100 billion francs to UBS so if Anything goes wrong UBS has access to a Mountain of cash straight from their Central Bank in fact according to Routers the assistance could be much More we are talking about 260 billion
Francs in state and Central Bank support That is almost a third of the country's GDP yes UBS debug Credit Suisse but it Was under the backdrop of huge Guarantees from the Swiss National Bank So ladies and gentlemen let me know if This is a bailout or not because it Suspiciously smells like one but the Story gets worse bondholders of Credit Suisse just got a nasty wake-up call Credit Suisse day wipe cleaned 17 Billion dollars worth of debt it is now Worthless and because of the UBS deal Credit Suisse had to write down 17 Billion dollars worth of additional tier One bonds and here's the controversy When a company goes bankrupt or write Down happens the shareholders should be The first to take a hit the bondholders Should be the ones that receive Compensation first so if you're a Bondholder and I'm a stockholder you Should get paid before me you get first Dips but how could this happen how could The bondholders get screwed it's because Of the type of bonds these were now These are called contingent convertible Balls or cocoa bonds right these are Often described as high yield Investments with a hand grenade attack And let's explain why now back in 2021 Credit Suisse wrote a report hyping up Cocoa bonds calling them an attractive Investment opportunity remember back in
2021 the 10-year yield on Swiss Government bonds was negative making Them a horrible investment you actually Lose money by loaning cash to the Swiss Government who would want to do that but The cocoa Market offers yields above 3.6 Percent and that's more than even the European high yield bonds at 2.8 percent So on the surface this sounded like a Great deal but here's the hand grenade Part of the deal here's the contingency Part of the cocoa Bond their status can Change if the bank's Capital Falls below A certain level they can convert the Body to equity or shares of the bank or In a worst case scenario they can Completely write off the bond and that Means you receive nothing as a Bondholder that is the nuclear option And guess what the unthinkable did Happen and this is the purest form of Counterparty risk you have no control Over how the bank will react when they Are collapsing now this isn't really the Bank's fault bondholders should have Known better you can expect to get a Better return without risk and this was A risky bet but here's the interesting Part it wasn't decided by UBS according To Dr CEO the decision to wipe out Cocoa Bond holders was done by The Regulators So they really wanted this deal to be Done to prevent a total collapse of Credit Suisse and this tells us how
Fragile the banking system is we are Starting to see the safest instruments Bonds implode before our very eyes first It was svb's treasury bets gone wrong Now it's Credit Suisse cocoa balls Crashing down to zero remember guys this Is happening at a fat fans rate of 4.5 Percent and we need to take higher Interest rates more seriously what would Happen at five or six percent what else Might improve well here's the big danger Of this cocoa Bond right now bondholders They are getting a first class education On the term counterpart risk especially If they are holding high risk debt we Are now seeing bondholders dumping their Holdings of the risky at1 bonds across Deutsche Bank and UBS this Bond dam is Getting worse because investors are now Starting to wake up and this is how bad It is getting according to routers we Have a UBS 81 bond callable in January 2024 at a yield of 29 that is an insane Jump from 12 yield just on Friday and This tells us that investors they are Terrified of a write down that they are Demanding almost 30 percent yield for The bond we have an ETF that tracks 81 Bonds collapsing in price because Everyone is truly afraid so just imagine If your bank now it is much harder for You to raise contingency money thanks to Credit Suisse bondholders already Believe the debt could be written off if
The worst happens we are now starting to Move from a liquidity crisis towards a Credit crisis which is much worse than a Bang run because at least in a bank run If you hold up to 250 000 dollars the FDIC will make you hold or in svb's case The FED will save you but in a credit Crisis the gears of Finance start Grinding to a halt in a credit crisis People are afraid to lend money to each Other investors they are too scared to Land companies and Banks money and Because liquidity from loans is drying Up Banks stop issuing loans themselves Because now money is expensive they're Also afraid of people defaulting on Their mortgages and bank loans suddenly The entire Financial system freezes up And money stops flowing around look I Know this sounds like a doomsday Scenario and I know we have Janet Yellen Telling us that everything is fine even After we had two American Banks failing But we need to ask ourselves the big Question of what if I'm gonna sound like A broken clock but this chaos is already Happening at just 4.5 interest rates Wait till we go higher so what are the Signs of a credit crisis how do we know If the system is grinding to a hall now The reason Bank runs are really adding Pressure on banks conserve their capital And this means banks are starting to Tighten their Landing they are being
Very selective and it makes sense There's always a bank run around the Corner and if your bank is targeted and You need to sell access to pay back Depositors it could be game over for you And now there are multiple calls for the Banks to tighten their Landing standards And this is going to contract credit and The flow of money even further we have a Strategies from JP Morgan telling us That Banks today are tightening faster Than back in 2020 we are just a disaster Or two from a full-blown credit crisis So what will be the trigger now I Believe it could come from the investor Side when they experience a full crisis Of confidence all it takes is for Bank To default on their bonds for chaos to Happen and I mean the normal bonds that Can't be converted into shares or Written down now if that event happens You'll be the equivalent of the sky Falling down but if investor runs Continue and liquidity starts draining Away fast enough and it thing is Possible in our Brave New World and Guess what central banks already Pre-empting this credit crisis they are Rushing to keep cash flowing through the System they know they have to prevent More Bank runs emitting confidence in The system now everything will fall like A house of cards you have the Bank of Canada the bank of England the boj the
ECB the Federal Reserve and the Swiss National Bank all panicking at the same Time the G7 banks have banded together To enhance the provision of liquidity Via the standing U.S dollar liquidity Swap line Arrangements basically they Are moving to keep the flow of US Dollars bumping through the financial System Janet Yellen herself knows that We are on the bring of a credit crisis During her testimony last week she told Congress if banks are under stress they Might be reluctant to land we could see Credit become more expensive and less Available if we get a credit event where Money stops circulating around we will Start to see asset prices across the Board crash stocks and real estate will Start to slide write down if money dries Up but here's the interesting thing if a Credit crisis happens there'll be two Likely winners in this scenario now the First is obvious and that is government Bonds because there can never be a Liquidity crisis when it comes to Treasuries and bonds the government can Just print out new dollars to pay you Back right maintaining your purchasing Power that's another thing but hey at Least you will get paid back now the Second could very well be gold now if a Credit crisis happens it will be in a Highly inflationary environment Inflation is still at six percent that's
Three times above what's considered Normal so if money is afraid of flowing To stocks and corporate bonds but Inflation is still high a huge chunk of Money could move into gold and beat up Prices even more and what we have now is Two storms on the horizon we have a bond Crisis brewing and a banking Consolidation already happening and if The Federal Reserve keeps hiking rates Up which could happen again just in a Few days even if it's just a 25 Point Hike something else could break in the System and you know things are really Bad when the Biden Administration has to Run the Warren Buffett for help maybe The next bailout might be from the Oracle himself it wouldn't surprise me If Berkshire Hathaway bails out yet Another bank they build out Goldman Sachs with 5 billion dollars back in 08 And if you turn Buffett made the Handsome three billion dollars from the Deal when he sold out in 2020 this could Happen again so brace yourselves guys Because this backing crisis isn't over Yet the devil has come back to collect But let me know what you think in the Comments below are we moving towards a Credit crisis soon it's a recession just Around the corner let me know in the Comments below stay safe be sure to Smash the like button and subscribe as We navigate through these crazy times
