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The Swiss government planned to install Sergio Ermotti as head of Credit Suisse in case it had to nationalize the embattled bank.
Eventually, Ermotti was reinstated as UBS chief executive in March, just days after saving Credit Suisse from collapse, in a deal that eliminated the need for Swiss authorities to bring the 167-year-old lender under state control and tested the bank’s failure rules put in place after the global financial crisis.
Swiss authorities — including the finance ministry, the national bank and financial regulator Finma — lobbied hard in mid-March for struggling rival UBS to take over, but have been drawing up detailed contingency plans since Credit Suisse was hit in October, according to three people with knowledge of the preparations.
One of the plans was to draft a shortlist of financial executives who could be moved as head of Credit Suisse and would be allowed to bring in their own emergency executive team.
Ermoty was at the top of the list. The conversations between the 63-year-old banking executive and Swiss government representatives took place in the days before Credit Suisse collapsed, according to the people themselves.
But by the time negotiations over the fate of Credit Suisse were taking place over the weekend of March 18-19, the Swiss Federal Council had decided that nationalizing the bank would not be an option because similar moves by the British, Dutch and Irish governments in the aftermath of the global financial crisis had proven costly and time-consuming.
Plan B to deal with Credit Suisse if the takeover by UBS fails was the solution, a form of insolvency procedure yet to be tested on a major global bank since the financial crisis.
Under the settlement plan, Finma would have taken control of Credit Suisse and the bank’s equity and additional Tier 1 bonds would be eliminated. People familiar with the plans said her bail bonds could have been converted into shares.
Finma could then make changes to Credit Suisse’s board and management team with the aim of speeding up the liquidation of its investment bank – albeit at a slower pace than the plan currently being implemented by UBS – the people added.
The Swiss authorities had already paved the way for a solution to the problem by drafting the necessary decree. The Federal Council has also prepared legislation to allow Credit Suisse to grant massive liquidity, as customers withdraw tens of billions of assets every day.
The government set about tightening measures in the wake of an October bank run when Credit Suisse suffered more than $100 billion in outflows in a matter of weeks after rumors on social media about its financial health.
Ermotti served as CEO of UBS for nine years until 2020, but was reinstated to replace his successor, Ralph Hammers, just days after agreeing to take over Credit Suisse, in recognition of the enormity of the task of bringing the two banks together.
This transaction is the first time that two global financial institutions of systemic importance have been brought together.
Ermotti is set to lay out his plans for the joint business in UBS’ second-quarter results on August 31.
Credit Suisse, UBS, Ermotti, Finma and the Swiss Finance Ministry all declined to comment.
