Raphael Stevens

UBS agreed to buy its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) Sunday.
The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.
The Swiss National Bank also pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the takeover.

UBS Chairman Colm Kelleher (R) shakes hands with Credit Suisse chairman Axel Lehmann (L) after a press conference following talks over Credit Suisse in Bern on March 19, 2023.
Fabrice Coffrini | Afp | Getty Images

UBS agreed to buy its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a key part in the deal as governments looked to stem a contagion threatening the global banking system.
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” read a statement from the Swiss National Bank, which noted the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring about the combination of the country’s two largest banks.

The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” said UBS Chairman Colm Kelleher in a statement.
The combined bank will have $5 trillion of invested assets, according to UBS.
“We are committed to making this deal a great success. There are no options in this,” Kelleher said when asked during the press conference if the bank could back out of the deal. “This is absolutely essential to the financial structure of Switzerland and … to global finance.”
The Swiss National Bank pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the takeover. The Swiss government also granted a guarantee to assume losses up to 9 billion Swiss francs from certain assets over a preset threshold “in order to reduce any risks for UBS,” said a separate government statement.

Axel Lehmann, chairman of Credit Suisse Group AG, Colm Kelleher, chairman of UBS Group AG, Karin Keller-Sutter, Switzerland’s finance minister, Alain Berset, Switzerland’s president, Thomas Jordan, president of the Swiss National Bank (SNB), Marlene Amstad, chairperson of the Swiss Financial Market Supervisory Authority (FINMA), left to right, during a news conference in Bern, Switzerland, on Sunday, March 19, 2023.
Pascal Mora | Bloomberg | Getty Images

“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister, in a press conference Sunday.
The UBS deal was scrambled together before markets reopened for trading Monday after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) granted from the Swiss central bank last week, in an effort to halt the slide and restore confidence in the bank.
News of the deal was welcomed by Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell in a statement. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation,” they said.
Credit Suisse had already been battling a string of losses and scandals, and in the last two weeks, sentiment was rocked again as banks in the U.S. reeled from the collapse of Silicon Valley Bank and Signature Bank.
U.S. regulators’ backstop of uninsured deposits in the failed banks and the creation of a new funding facility for troubled financial institutions failed to stem the shock and is threatening to envelop more banks both in the U.S. and abroad.

(From L) Credit Suisse chairman Axel Lehmann, UBS Chairman Colm Kelleher and Swiss Finance Minister Karin Keller-Sutter attend a press conference after talks over UBS taking over its troubled rival Swiss bank Credit Suisse in Bern on March 19, 2023. 
Fabrice Coffrini | Afp | Getty Images

Credit Suisse Chairman Axel Lehmann said in the press conference that the financial instability brought about by the collapsed U.S. regional banks hit the bank at the wrong time.
Despite regulators’ involvement in the pairing, the deal gives UBS autonomy to run the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.
Credit Suisse’s scale and potential impact on the global economy is much greater than U.S. regional banks, which pressured Swiss regulators to find a way to bring the country’s two largest financial institutions together. Credit Suisse’s balance sheet is around twice the size of Lehman Brothers’ when it collapsed, at around 530 billion Swiss francs as of the end of 2022. It is also far more globally interconnected, with multiple international subsidiaries — making an orderly management of Credit Suisse’s situation even more important.
Bringing the two rivals together was not without its struggles, but pressure to stave off a systemic crisis won out in the end. UBS initially offered to buy Credit Suisse for around $1 billion Sunday, according to multiple media reports. Credit Suisse reportedly balked at the offer, arguing it was too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg. 
By Sunday afternoon, UBS was in talks to buy the bank for “substantially” more than 1 billion Swiss francs, sources told CNBC’s Faber. He said the price of the deal increased throughout the day’s negotiations. 
Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.
The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.
—CNBC’s Elliot Smith contributed to this report.

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“Our policy actions work through financial conditions.” So said Jerome Powell, chairman of the Federal Reserve, late last year, referring to the causal chain of monetary policy. As interest rates rise, tighter financial conditions lead companies and consumers to cut spending, prompting economic slowdown and lower inflation. The past ten days have illustrated a less desirable causal chain: from higher rates to a banking crisis.These stormy financial conditions pose a dilemma for the Fed. Should it remain focused on high inflation, and thus continue to raise rates? Or is financial stability now the priority?On March 22nd, at a regular monetary-policy meeting, policymakers will decide. Before the turmoil that started with a run on Silicon Valley Bank, a ninth straight rate rise seemed a foregone conclusion. The debate had been whether the Fed would opt for a quarter-point increase, as in January, or a half-point increment. Now there is uncertainty about whether it will raise rates at all. Market pricing assigns probabilities of roughly 60% to a quarter-point increase and 40% to the Fed staying put—not far from a coin flip.The case for a pause rests on two arguments. First, higher rates are at the root of the financial chaos. Even if Silicon Valley Bank was an outlier in its missteps, other banks and financial firms, from hedge funds to insurers, have hefty mark-to-market losses on their bond holdings. A further rise in rates might add to their notional losses.Second, instability is itself a drag on the economy. As confidence cracks, firms try to preserve capital. Banks lend less and investors pull back. Measures of financial conditions—which include interest rates, credit spreads and stock values—have tightened sharply in the past ten days. Eric Rosengren, a former president of the Fed’s Boston branch, has compared it to the aftermath of an earthquake. Before resuming normal life, it is prudent to see whether there are aftershocks and buildings are structurally sound. A similar logic applies to monetary policy after a financial shock. “Go slow, check for other problems,” Mr Rosengren cautioned.Proponents of pressing ahead with a rate rise accept that financial instability is a form of tightening. But they see this as an argument for a quarter-point rise instead of the half point that many had favoured. Persisting with a rate increase now would signal that the Fed is still intent on quelling inflation, which remains too high for comfort, as illustrated by the 6% year-on-year increase in consumer prices in February. Flickers of a recovery in the property industry indicate that, unlike poorly run banks, much of the economy can endure higher rates.A rate rise would also demonstrate that the Fed can chew gum and walk at the same time. In an ideal world officials should be able to manage financial stability while keeping inflation in check. With a combination of deposit guarantees, a new liquidity facility and support from bigger banks, a framework is now in place to shore up America’s financial institutions. The scale of the support is revealed by the size of the expansion in the Fed’s balance-sheet. In the week to March 15th banks borrowed nearly $153bn from the Fed’s discount window, up from less than $5bn in the preceding week, as well as another $11.9bn from the central bank’s new liquidity facility. This has alleviated the sell-off in markets, at least for now, which may give the Fed space to turn its attention back to inflation. Indeed, it can look to the example of the European Central Bank, which on March 16th announced a half-point rate increase, despite the financial chaos. Then there is the question of market psychology—all the more salient at a time of panic. Counterintuitively, a rate rise may be somewhat reassuring. A pause would suggest that the Fed, hawkish in tone and action for the past year, really is worried. An increase, by contrast, would signal that it thinks the crisis is under control.Numerically, the difference between the options is small. The Fed is expected either to keep its target for short-term rates to a range between 4.5% and 4.75%, or to lift it to between 4.75% and 5%. In purely financial terms, that is almost immaterial. In terms of policy, it could scarcely be more important. ■ More

A sale to UBS, which could be signed as early as this evening, values Credit Suisse at around $7 billion less than its market value at Friday’s close.
It comes after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic.
This despite an announcement that it would access a loan of up to 50 billion Swiss francs ($54 billion) from the Swiss central bank.

A customer walks towards an automated teller machine (ATM) inside a Credit Suisse Group AG bank branch in Geneva, Switzerland, on Thursday, Sept. 1, 2022. 
Jose Cendon | Bloomberg | Getty Images

Swiss banking giant UBS on Sunday offered to buy its embattled rival Credit Suisse for up to $1 billion, according to the Financial Times, citing four people with direct knowledge of the situation.
The deal, which the FT said could be signed as early as Sunday evening, values Credit Suisse at around $7 billion less than its market value at Friday’s close.   

The FT said UBS had offered a price of 0.25 Swiss francs ($0.27) a share to be paid in UBS stock. Credit Suisse shares ended Friday at 1.86 Swiss francs. The fast-moving nature of the negotiations means the terms of any end deal could be different from those reported.
Credit Suisse is reportedly balking at the offer, however, arguing it is too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.
Credit Suisse declined to comment on the reports when contacted by CNBC.
The UBS offer comes after Credit Suisse shares logged their worst weekly decline since the onset of the coronavirus pandemic, despite an announcement that it would access a loan of up to 50 billion Swiss francs ($54 billion) from the Swiss central bank.
It had already been battling a string of losses and scandals, and last week sentiment was rocked again with the collapse of Silicon Valley Bank and the shuttering of Signature Bank in the U.S., sending shares sliding.

Credit Suisse’s scale and potential impact on the global economy is much greater than the U.S. banks. The Swiss bank’s balance sheet is around twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of end-2022. It is also far more globally inter-connected, with multiple international subsidiaries — making an orderly management of Credit Suisse’s situation even more important.
Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022, and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.
The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.
This is a developing story. Please check back for updates.

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Startup CEOs across the U.S. were already cutting costs and preserving cash before Silicon Valley Bank’s failure created additional headaches.
Exit activity for venture-backed startups in the fourth quarter plunged more than 90% from a year earlier, according to data from the PitchBook-NVCA Venture Monitor.
“There was just a complete reversal of the speed at which investors were willing to move,” said ChartHop CEO Ian White.

ChartHop CEO Ian White

ChartHop CEO Ian White breathed a major sigh of relief in late January after his cloud software startup raised a $20 million funding round. He’d started the process six months earlier during a brutal period for tech stocks and a plunge in venture funding. 
For ChartHop’s prior round in 2021, it took White less than a month to raise $35 million. The market turned against him in a hurry.

“There was just a complete reversal of the speed at which investors were willing to move,” said White, whose company sells cloud technology used by human resources departments. 
Whatever comfort White was feeling in January quickly evaporated last week. On March 16 — a Thursday — ChartHop held its annual revenue kickoff at the DoubleTree by Hilton Hotel in Tempe, Arizona. As White was speaking in front of more than 80 employees, his phone was blowing up with messages.
White stepped off stage to find hundreds of panicked messages from other founders about Silicon Valley Bank, whose stock was down more than 60% after the firm said it was trying to raise billions of dollars in cash to make up for deteriorating deposits and ill-timed investments in mortgage-backed securities. 
Startup executives were scrambling to figure out what to do with their money, which was locked up at the 40-year-old firm long known as a linchpin of the tech industry. 
“My first thought, I was like, ‘this is not like FTX or something,'” White said of the cryptocurrency exchange that imploded late last year. “SVB is a very well-managed bank.” 

But a bank run was on, and by Friday SVB had been seized by regulators in the second-biggest bank failure in U.S. history. ChartHop banks with JPMorgan Chase, so the company didn’t have direct exposure to the collapse. But White said many of his startup’s customers held their deposits at SVB and were now uncertain if they’d be able to pay their bills. 

While the deposits were ultimately backstopped last weekend and SVB’s government-appointed CEO tried to reassure clients that the bank was open for business, the future of Silicon Valley Bank is very much uncertain, further hampering an already troubled startup funding environment.
SVB was the leader in so-called venture debt, providing loans to risky early-stage companies in software, drug development and other areas like robotics and climate-tech. Now it’s widely expected that such capital will be less available and more expensive. 
White said SVB has shaken the confidence of an industry already grappling with rising interest rates and stubbornly high inflation.
Exit activity for venture-backed startups in the fourth quarter plunged more than 90% from a year earlier to $5.2 billion, the lowest quarterly total in more than a decade, according to data from the PitchBook-NVCA Venture Monitor. The number of deals declined for a fourth consecutive quarter. 
In February, funding was down 63% from $48.8 billion a year earlier, according to a Crunchbase funding report. Late-stage funding fell by 73% year-over-year, and early-stage funding was down 52% over that stretch.

‘World was falling apart’

CNBC spoke with more than a dozen founders and venture capitalists, before and after the SVB meltdown, about how they’re navigating the precarious environment.
David Friend, a tech industry veteran and CEO of cloud data storage startup Wasabi Technologies, hit the fundraising market last spring in an attempt to find fresh cash as public market multiples for cloud software were plummeting. 
Wasabi had raised its prior round a year earlier, when the market was humming, IPOs and special purpose acquisition companies (SPACs) were booming and investors were drunk on low interest rates, economic stimulus and rocketing revenue growth.
By last May, Friend said, several of his investors had backed out, forcing him to restart the process. Raising money was “very distracting” and took up more than two-thirds of his time over nearly seven months and 100 investor presentations.
“The world was falling apart as we were putting the deal together,” said Friend, who co-founded the Boston-based startup in 2015 and previously started numerous other ventures including data backup vendor Carbonite. “Everybody was scared at the time. Investors were just pulling in their horns, the SPAC market had fallen apart, valuations for tech companies were collapsing.” 
Friend said the market always bounces back, but he thinks a lot of startups don’t have the experience or the capital to weather the current storm. 
“If I didn’t have a good management team in place to run the company day to day, things would have fallen apart,” Friend said, in an interview before SVB’s collapse. “I think we squeaked through, but if I had to go back to the market right now and raise more money, I think it’d be extremely difficult.”
In January, Tom Loverro, an investor with Institutional Venture Partners, shared a thread on Twitter predicting a “mass extinction event” for early and mid-stage companies. He said it will make the 2008 financial crisis “look quaint.”
Loverro was hearkening back to the period when the market turned, starting in late 2021. The Nasdaq hit its all-time high in November of that year. As inflation started to jump and the Federal Reserve signaled interest rate hikes were on the way, many VCs told their portfolio companies to raise as much cash as they’d need to last 18 to 24 months, because a massive pullback was coming.  
In a tweet that was widely shared across the tech world, Loverro wrote that a “flood” of startups will try to raise capital in 2023 and 2024, but that some will not get funded. 

Federal Reserve Chair Jerome Powell arrives for testimony before the Senate Banking Committee March 7, 2023 in Washington, DC.
Win Mcnamee | Getty Images News | Getty Images

Next month will mark 18 months since the Nasdaq peak, and there are few signs that investors are ready to hop back into risk. There hasn’t been a notable venture-backed tech IPO since late 2021, and none appear to be on the horizon. Meanwhile, late-stage venture-backed companies like Stripe, Klarna and Instacart have been dramatically reducing their valuations.
In the absence of venture funding, money-losing startups have had to cut their burn rates in order to extend their cash runway. Since the beginning of 2022, roughly 1,500 tech companies have laid off a total of close to 300,000 people, according to the website Layoffs.fyi.
Kruze Consulting provides accounting and other back-end services to hundreds of tech startups. According to the firm’s consolidated client data, which it shared with CNBC, the average startup had 28 months of runway in January 2022. That fell to 23 months in January of this year, which is still historically high. At the beginning of 2019, it sat at under 20 months. 
Madison Hawkinson, an investor at Costanoa Ventures, said more companies than normal will go under this year. 
“It’s definitely going to be a very heavy, very variable year in terms of just viability of some early-stage startups,” she told CNBC. 
Hawkinson specializes in data science and machine learning. It’s one of the few hot spots in startup land, due largely to the hype around OpenAI’s chatbot called ChatGPT, which went viral late last year. Still, being in the right place at the right time is no longer enough for an aspiring entrepreneur. 

Founders should anticipate “significant and heavy diligence” from venture capitalists this year instead of “quick decisions and fast movement,” Hawkinson said. 
The enthusiasm and hard work remains, she said. Hawkinson hosted a demo event with 40 founders for artificial intelligence companies in New York earlier this month. She said she was “shocked” by their polished presentations and positive energy amid the industrywide darkness. 
“The majority of them ended up staying till 11 p.m.,” she said. “The event was supposed to end at 8.” 

Founders ‘can’t fall asleep at night’

But in many areas of the startup economy, company leaders are feeling the pressure.
Matt Blumberg, CEO of Bolster, said founders are optimistic by nature.  He created Bolster at the height of the pandemic in 2020 to help startups hire executives, board members and advisers, and now works with thousands of companies while also doing venture investing.
Even before the SVB failure, he’d seen how difficult the market had become for startups after consecutive record-shattering years for financing and an extended stretch of VC-subsidized growth. 
“I coach and mentor a lot of founders, and that’s the group that’s like, they can’t fall asleep at night,” Blumberg said in an interview. “They’re putting weight on, they’re not going to the gym because they’re stressed out or working all the time.”
VCs are telling their portfolio companies to get used to it. 
Bill Gurley, the longtime Benchmark partner who backed Uber, Zillow and Stitch Fix, told Bloomberg’s Emily Chang last week that the frothy pre-2022 market isn’t coming back. 
“In this environment, my advice is pretty simple, which is — that thing we lived through the last three or four years, that was fantasy,” Gurley said. “Assume this is normal.”
Laurel Taylor recently got a crash course in the new normal. Her startup, Candidly, announced a $20.5 million financing round earlier this month, just days before SVB became front-page news. Candidly’s technology helps consumers deal with education-related expenses like student debt.
Taylor said the fundraising process took her around six months and included many conversations with investors about unit economics, business fundamentals, discipline and a path to profitability. 
As a female founder, Taylor said she’s always had to deal with more scrutiny than her male counterparts, who for years got to enjoy the growth-at-all-costs mantra of Silicon Valley. More people in her network are now seeing what she’s experienced in the almost seven years since she started Candidly.
“A friend of mine, who is male, by the way, laughed and said, ‘Oh, no, everybody’s getting treated like a female founder,'” she said. 
WATCH: Cash crunch could lead to more M&A and quicker tech IPOs

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There’s speculation the Silicon Valley Bank collapse could expose problems lurking in ETFs tied to specific sectors.
Astoria Portfolio Advisors CIO John Davi has financials topping his watch list.

“You need to be mindful of your risk,'” Davi, who runs the AXS Astoria Inflation Sensitive ETF, told CNBC’s “ETF Edge” this week. The fund is an ETF.com 2023 “ETF of the Year” finalist.
Davi contends the Financial Select Sector SPDR ETF (XLF) could be among the biggest near-term laggards. It tracks the S&P 500 financial index.
His firm sold the ETF’s positions in regional banks this week and bought larger cap banks, according to Davi. He sees bigger institutions as a more stable, multiyear investment.
The XLF ended the week more than 3% lower. It’s down almost 8% since the SVB collapse March 10.

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Credit Suisse is undergoing a massive strategic overhaul aimed at restoring stability and profitability after a litany of losses and scandals, but markets and stakeholders still appear unconvinced.
On Friday, the Financial Times reported that UBS is in talks to take over all or part of Credit Suisse, citing multiple people involved in the discussions.
The CEO of Ethos, which represents shareholders holding more than 3% of Credit Suisse stock, told CNBC that its preference was “still to have a spin-off and independent listing of the Swiss division of CS.”

People walk by the New York headquarters of Credit Suisse on March 15, 2023 in New York City. 
Spencer Platt | Getty Images

Credit Suisse may have received a liquidity lifeline from the Swiss National Bank, but analysts are still assessing the embattled lender’s prognosis, weighing the option of a sale and whether it is indeed “too big to fail.”
Credit Suisse’s management began crunch talks this weekend to assess “strategic scenarios” for the bank, Reuters reported citing sources.

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It comes after the Financial Times reported Friday that UBS is in talks to take over all or part of Credit Suisse, citing multiple people involved in the discussions. Neither bank commented on the report when contacted by CNBC.
According to the FT, the Swiss National Bank and Finma, its regulator, are behind the negotiations, which are aimed at boosting confidence in the Swiss banking sector. The bank’s U.S.-listed shares were around 7% higher in after-hours trading early Saturday.

Credit Suisse is undergoing a massive strategic overhaul aimed at restoring stability and profitability after a litany of losses and scandals, but markets and stakeholders still appear unconvinced.
Shares fell again on Friday to register their worst weekly decline since the onset of the coronavirus pandemic, failing to hold on to Thursday’s gains which followed an announcement that Credit Suisse would access a loan of up to 50 billion Swiss francs ($54 billion) from the central bank.
Possible UBS sale
There has long been chatter that parts — or all — of Credit Suisse could be acquired by domestic rival UBS, which boasts a market cap of around $60 billion to its struggling compatriot’s $7 billion.

Beat Wittmann, chairman and partner at Swiss advisory firm Porta Advisors, said he expects a merger to be announced before market open Monday.
“If negotiations this weekend won’t be successful then expect that CS will be under non stop fire from a falling equity price, soaring credit default swaps prices, bank counterparties cutting lines, client assets’ outflows and international regulators in New York, London and Frankfurt,” he warned.
“Key elements of a straightforward corporate financial transaction have to be to unwind and/or sell crucial parts of the investment bank and secure continuation of the Swiss bank’s business,” Wittmann added.
JPMorgan’s Kian Abouhossein described a takeover “as the more likely scenario, especially by UBS.”
In a note Thursday, he said a sale to UBS would likely lead to: The IPO or spinoff of Credit Suisse’s Swiss bank to avoid “too much concentration risk and market share control in the Swiss domestic market”; the closure of its investment bank; and retention of its wealth management and asset management divisions.
Both banks are reportedly opposed to the idea of a forced tie-up.

This fund manager shorted Credit Suisse — and he’s sticking with his bet

BlackRock, meanwhile, denied an FT report Saturday that it is preparing a takeover bid for Credit Suisse. “BlackRock is not participating in any plans to acquire all or any part of Credit Suisse, and has no interest in doing so,” a company spokesperson told CNBC Saturday morning.
Vincent Kaufmann, CEO of Ethos, a foundation that represents shareholders holding more than 3% of Credit Suisse stock, told CNBC that its preference was “still to have a spin-off and independent listing of the Swiss division of CS.”
“A merger would pose a very high systemic risk for Switzerland and also create a dangerous Monopoly for the Swiss citizens,” he added.
Bank of America strategists noted on Thursday, meanwhile, that Swiss authorities may prefer consolidation between Credit Suisse’s flagship domestic bank and a smaller regional partner, since any combination with UBS could create “too large a bank for the country.”
‘Orderly resolution’ needed
The pressure is on for the bank to reach an “orderly” solution to the crisis, be that a sale to UBS or another option.
Barry Norris, CEO of Argonaut Capital, which has a short position in Credit Suisse, stressed the importance of a smooth outcome.
“I think in Europe, the battleground is Credit Suisse, but if Credit Suisse has to unwind its balance sheet in a disorderly way, those problems are going to spread to other financial institutions in Europe and also beyond the banking sector, particularly I think into commercial property and private equity, which also look to me to be vulnerable to what’s going on in financial markets at the moment,” Norris told “Squawk Box Europe” Friday.

The importance of an “orderly resolution” was echoed by Andrew Kenningham, chief European economist at Capital Economics.
“As a Global Systemically Important Bank (or GSIB) it will have a resolution plan but these plans (or ‘living wills’) have not been put to the test since they were introduced during the Global Financial Crisis,” Kenningham said. “Experience suggests that a quick resolution can be achieved without triggering too much contagion provided that the authorities act decisively and senior debtors are protected.”
He added that while regulators are aware of this, as evidenced by the SNB and Swiss regulator FINMA stepping in on Wednesday, the risk of a “botched resolution” will worry markets until a long-term solution to the bank’s problems becomes clear.

Stock to zero?

Despite a possible UBS acquisition, Norris still expects Credit Suisse’s stock to become worthless.
“Our view has been that the end game has always been UBS stepping in and rescuing Credit Suisse with the encouragement of the Swiss government/National Bank,” Norris told CNBC Pro Saturday.
“If this happens we would expect [Credit Suisse] equity holders to get zero, deposit holders guaranteed and probably but not certain that bond holders will be made whole.”
European banking shares have suffered steep declines throughout the latest Credit Suisse saga, highlighting market concerns about the contagion effect given the sheer scale of the 167-year-old institution.
The sector was rocked at the beginning of the week by the collapse of Silicon Valley Bank, the largest banking failure since Lehman Brothers, along with the shuttering of New York-based Signature Bank.
Yet in terms of scale and potential impact on the global economy, these companies pale in comparison to Credit Suisse, whose balance sheet is around twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs as of end-2022. It is also far more globally inter-connected, with multiple international subsidiaries.

For Wittmann, the demise of Credit Suisse has been “entirely self-inflicted by years of mismanagement and an epic destruction of corporate and shareholder value.”
“Broader lessons learnt will have to include minimization of investment banking, higher capital requirements, securing alignment of interest re compensation and importantly that the structurally under-resourced Swiss regulator FINMA would be brought up to fulfill its task,” he said.
Central banks to provide liquidity
The biggest question economists and traders are wrestling with is whether Credit Suisse’s situation poses a systemic risk to the global banking system.
Oxford Economics said in a note Friday that it was not incorporating a financial crisis into its baseline scenario, since that would require systemic problematic credit or liquidity issues. At the moment, the forecaster sees the problems at Credit Suisse and SVB as “a collection of different idiosyncratic issues.”
“The only generalised problem that we can infer at this stage is that banks – who have all been required to hold large amounts of sovereign debt against their flighty deposits – may be sitting on unrealised losses on those high-quality bonds as yields have risen,” said Lead Economist Adam Slater.
“We know that for most banks, including Credit Suisse, that exposure to higher yields has largely been hedged. Therefore, it is difficult to see a systemic problem unless driven by some other factor of which we are not yet aware.”

Despite this, Slater noted that “fear itself” can trigger depositor flights, which is why it will be crucial for central banks to provide liquidity.
The U.S. Federal Reserve moved quickly to establish a new facility and protect depositors in the wake of the SVB collapse, while the Swiss National Bank has signaled that it will continue to support Credit Suisse, with proactive engagement also coming from the European Central Bank and the Bank of England.
“So, the most likely scenario is that central banks remain vigilant and provide liquidity to help the banking sector through this episode. That would mean a gradual easing of tensions as in the LDI pension episode in the U.K. late last year,” Slater suggested.
Kenningham, however, argued that while Credit Suisse was widely seen as the weak link among Europe’s big banks, it is not the only one to struggle with weak profitability in recent years.
“Moreover, this is the third ‘one-off’ problem in a few months, following the UK’s gilt market crisis in September and the US regional bank failures last week, so it would be foolish to assume there will be no other problems coming down the road,” he concluded.
— CNBC’s Katrina Bishop, Leonie Kidd and Darla Mercado contributed to this report.

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Those losses come even after 11 other banks pledged to deposit $30 billion in First Republic for at least 120 days in a coordinated rescue attempt meant to instill confidence.
There were concerns that the infusion may not be enough to shore up First Republic going forward.
Atlantic Equities downgraded First Republic to neutral, noting the bank may need an additional $5 billion in capital. 

People are seen inside the First Republic Bank branch in Midtown Manhattan in New York City, New York, U.S., March 13, 2023. REUTERS/Mike Segar
Mike Segar | Reuters

Shares of First Republic were under severe pressure Friday despite the beaten-down regional bank receiving aid from other financial institutions the day before.
At the market close, the stock was down 32.8%, the worst performer in the SPDR S&P Regional Banking ETF (KRE) — which dropped 6.0%. PacWest lost 19% and Western Alliance dropped 15%, while US Bancorp declined more than 9%.

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Those losses came even after 11 other banks pledged to deposit $30 billion in First Republic as a vote of confidence in the company.

“This action by America’s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,” the group, which included Goldman Sachs, Morgan Stanley and Citigroup, said in a statement.

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First Republic Bank continued to crater on Friday.

There were concerns that Thursday’s deposit infusion may still not be enough to shore up First Republic in the future.
Atlantic Equities downgraded First Republic to neutral, noting the bank may need an additional $5 billion in capital. 
“Management is exploring different strategic options which may include a full sale or divestments of parts of the loan portfolio. The limited information provided implies that the balance sheet has increased substantially, which may well necessitate a capital raise,” analyst John Heagerty wrote.

Meanwhile, Wedbush analysts put a $5 price target on First Republic, saying that a takeover could wipe out most of its equity value.
“A distressed M&A sale could result in minimal, if any, residual value to common equity holders owing to FRC’s significant negative tangible book value after taking into account fair value marks on its loans and securities.”
Late Friday, after the stock market closed, the New York Times reported that First Republic was in talks to raise capital by selling shares to other unnamed banks or private equity firms in a private sale. Terms of the deal, as to the price of the shares, how many and to whom, were still under discussion, and it was also possible that the entire bank might be sold, the Times said.
— CNBC’s Michael Bloom and Scott Schnipper contributed to this report.

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