UBS Group AG’s rushed deal to buy beleaguered rival Credit Suisse Group AG wasn’t the best solution, but was the most reasonable of the options available, says Mohamed El-Erian.
(Bloomberg) —
UBS Group AG’s rushed deal to buy beleaguered rival Credit Suisse Group AG wasn’t the best solution, but was the most reasonable of the options available, says Mohamed El-Erian.
“Look, this was not the best solution, but it dominated the other two, which was either nationalization, or trying to wind down the bank,” the chief economic adviser at Allianz SE and a Bloomberg Opinion columnist told Bloomberg TV on Sunday. “It’s not clean, but of the available options, this was the best one that they could have had.”
El-Erian added that UBS’s takeover was a bailout. “Yeah, it was a bailout,” he said. “The phrase ‘bailout’ has become such an awful phrase that everybody is avoiding it. They’re going out of their way to say that it’s not a bailout, but then they can’t explain why money’s being put to work.”
UBS agreed to buy Credit Suisse in what has been a historic government-brokered deal as officials around the world race to contain a spreading banking crisis. The Swiss bank is paying 3 billion francs ($3.25 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions.
The plan, negotiated over the weekend, looks to address client outflows and a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of a handful of US banks.
Read more: From Bear Stearns to Credit Suisse: Crises, Mergers and Bailouts
In the US, news continued to trickle in around First Republic Bank, which Bloomberg News reported will be downgraded again by S&P Global Inc., days after the ratings firm cut the lender to junk. Last week, a group of bigger financial firms agreed to park a combined $30 billion in deposits with the bank.
El-Erian said that along with news around the UBS-Credit Suisse deal and how shareholders respond to it, he’ll also be watching First Republic at the start of the new week. Should the lender once again be downgraded by S&P, “that would not be good news — that would make First Republic’s life much harder. So we have to keep an eye on First Republic, and then the spillovers from all those two.”
Asked if he was concerned about other institutions known to have issues, or if the worst might be in the past, El-Erian said: “I don’t know — because even banks that have no issues — they just happen to be in the wrong neighborhood — may suffer deposit withdrawals.”
“I spent a lot of time this weekend talking to people who are asking me a simple question: ‘Are my deposits safe?’ And I say, ‘yes, they are safe,’” El-Erian said in Sunday’s interview. “And then they ask me the following question: ‘What do I lose if I move them to the largest banks? What do I lose?’ And it’s hard to argue that you’d lose something. So people are doing something that probably is not rational but totally understandable.”
(Updates with additional comments starting in sixth paragraph)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.