Swiss prosecutor opens investigation into Credit Suisse takeover

Switzerland’s federal prosecutors have opened an investigation into the state-backed takeover of Credit Suisse by its bigger rival UBS.

The Bern-based prosecutor is looking into potential breaches of Swiss criminal law by government officials, regulators and executives at the two banks, which agreed to an emergency merger last month during a hectic weekend to avert a potentially catastrophic financial crisis.

“The federal prosecutor’s office wants to proactively fulfill its mission and responsibility to contribute to a clean Swiss financial center and has set up surveillance to take immediate action in any situation that falls within its scope of activity,”[ads1]; the authority told the Financial Times.

There were “many aspects of events surrounding Credit Suisse” that warranted investigation, it said, which needed to be analyzed to “identify any crimes that may fall within the purview of [prosecutor]”.

The prosecutor, Stefan Blättler, has issued a number of “investigation orders” to public bodies. His office has also been in contact with the federal and cantonal authorities and is likely to seek to interview key officials in relation to the takeover.

The forced marriage between the two banks has caused an uproar in Switzerland: political parties have triggered a special meeting of parliament this month where a formal commission of inquiry is likely to be voted into power.

Opinion polls show that more than three-quarters of Swiss citizens oppose the $3.5 billion takeover, which would create a financial giant with a balance sheet of more than SFr5.5 billion.

Prosecutor Stefan Blättler has given a number
Swiss prosecutor Stefan Blättler has issued a series of “investigation orders” to public bodies © Fabrice Coffrini/AFP/Getty Images

A majority support legislation to break up the bank or even measures to reclaim bonuses from executives, who they say should be held accountable for their actions.

Parliamentarians from across the political spectrum have also questioned the use of emergency powers by the government – the seven-person Federal Council – to extend taxpayer-backed financial guarantees to UBS and to quell possible shareholder opposition.

The Federal Council issued a decree to write off more than SFr 16 billion of so-called AT1 subordinated hybrid debt instruments issued by Credit Suisse to smooth the takeover, while choosing to preserve some value for shareholders.

The move angered some major international fixed-income investors, and raised concerns among international regulators about the impact on other banks’ ongoing ability to raise capital.

Some of the investors affected have vowed to take the Swiss government and the Financial Supervisory Authority to court over the decision.

Bern has insisted that the urgency of the situation last month meant there were few options. Credit Suisse experienced a dramatic deterioration in its ability to access liquidity in the days before the bailout ended on March 19, the government has said.

According to Finance Minister Karin Keller-Sutter, a government takeover of Credit Suisse, or its orderly dissolution in a process known as “resolution”, were not viable alternatives to the takeover because of the unacceptable financial risk to taxpayers they would have incurred.

Shareholders for both UBS and Credit Suisse – who were refused to speak out by the government – will next week have an opportunity to air grievances at both banks’ annual meetings.

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