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Foreign investment in Aotearoa/New Zealand
Overseas Investment Office - May 2023 Decision
Shake-Up In Swiss Banking Reaches NZ
The OIO approved UBS Group AG Registered shares: (Switzerland 20.6%) (Europe, Middle East and Africa 16%) (Americas 9.8%), (Asia Pacific 1%) Unregistered shares: 52.6% making an "Indirect acquisition of freehold interest in non-sensitive commercial properties in Wellington, (subject to a merger by absorption) which are used in carrying on business in New Zealand, and where the total value of the consideration exceeds $100 million".
The "merger by absorption" was of Credit Suisse Group AG (Saudi Arabia 9.9%) (United States of America 5.1%) (Qatar 5%) (Various 80%). The price was $360 million. The Background section of the Decision says: "UBS and Credit Suisse are both multinational investment banks and financial services companies founded and based in Switzerland, and active globally. Their businesses include wealth management, asset management, investment banking services, and retail and corporate banking".
"In New Zealand, UBS provides services in investment banking, equities trading, research to clients and limited cross border services to non-retail wealth management clients. UBS is not a registered bank in New Zealand. UBS has more than 30 professional staff in New Zealand, providing financial services to corporate, institutional and Government clients. It has an office, located in the HSBC Tower at 188 Quay Street in central Auckland".
"UBS and Credit Suisse are proposing to merge via absorption under the Swiss Merger Act, with UBS being the only remaining entity post-transaction resulting in UBS acquiring an indirect freehold interest in non-sensitive commercial properties in New Zealand. The proposed merger follows from a severe deterioration of Credit Suisse's financial situation".
"Most recently, the collapse of the Silicon Valley Bank, the Signature Bank, and the First Republic Bank in the US in early March 2023 resulted in a concern that those events in the US banking market could have a systemic risk outside the US and cause another global financial crisis". And there you have it. This is the first time that I can recall seeing an OIO Decision using words like "severe deterioration of" somebody's "financial situation", "collapse", "systemic risk" and "cause another global financial crisis". What next? Will the OIO be talking about the crisis of capitalism?
Emergency Takeover
This was no carefully researched and choreographed takeover - it was an emergency one, done in the quickest time possible. The takeover created "a giant Swiss bank with a balance sheet of $US1.6 trillion and greater muscle in wealth management. ... The group will oversee $US5 trillion of assets, giving UBS a leading position in key markets it would otherwise have needed years to grow in size and reach. The merger also brings to an end Credit Suisse's 167-year history, marred in recent years by scandals and losses".
"Having peaked at more than 82 Swiss francs ($90.11) in 2007, Credit Suisse, plagued by scandals and heavy losses, plumbed to ever-deeper lows, closing at less than one franc ($US1.10)" in June (2023) ... "The two banks jointly employ 120,000 people worldwide, although UBS has already said it will be cutting jobs to reduce costs and take advantage of synergies".
"UBS agreed on March 19 (2023) to buy the lender for a knockdown price of three billion Swiss francs ($US3.3bn) and up to five billion francs ($US5.5bn) in assumed losses in a rescue that Swiss authorities orchestrated to prevent a collapse in customer confidence from pushing Switzerland's number-two bank over the edge. UBS sealed the takeover in less than three months - a tight timetable given its scale and complexity - in a race to provide greater certainty for Credit Suisse clients and employees, and to stave off departures."
"However, the deal, which saw the State bankroll the rescue, exposed two myths: that Switzerland was entirely predictable, and that the banks' problems would not rebound on taxpayers. 'It was supposed to be the end of too-big-to-fail and State-led bailout', said Jean Dermine, Professor of Banking and Finance at the Institut Européen d'Administration des Affaires (INSEAD), adding that the episode showed this central reform after the global financial crisis had not worked. The rescue also showed that even big global banks are vulnerable to bouts of bank panic, said Arturo Bris, Professor of Finance and Director of the IMD World Competitiveness Center".
"What's more, the disappearance of Credit Suisse's investment bank, which UBS has said it will seek to cut back significantly, marks yet another retreat of a European lender from securities trading, which is now largely dominated by United States firms. Swiss regulator FINMA, which came under fire for its handling of the downfall of the country's second-largest bank, said one of the most pressing goals for the newly merged bank was to quickly reduce the risk of the former Credit Suisse investment bank".
"UBS is set to book a massive profit in second-quarter results after buying Credit Suisse for a fraction of its so-called fair value. Analysts say public concerns the new bank will be too big - with a balance sheet roughly double the size of the Swiss economy - means UBS might need to tread carefully to avoid being exposed to even tougher regulation and capital requirements that its new scale would call for".
"They also warn that uncertainty inevitably caused by a takeover of such scale can leave UBS struggling to retain staff and customers and that it remained an open question whether the deal can deliver value for shareholders in the long run" (Al Jazeera, 12/6/23).
Why Did Credit Suisse Collapse?
"Many banks attract regulatory censure from time to time. But in recent years, Credit Suisse and its employees have been investigated, fined, made settlements and even been imprisoned for various money laundering, corruption, tax evasion and even corporate espionage scandals. Credit Suisse's scandals are truly global in nature".
"They have ranged from money laundering for Japanese gangs and Bulgarian drugs traffickers, to kickbacks in Mozambique, tax evasion in the United States, spying on former employees in Switzerland, dealing with African dictators and jobs-for-business deals with Chinese officials in Hong Kong" (Economics Observatory, 13/4/23, Rebecca Stuart). Sounds like a good candidate for a global Roger Award.
The OIO Decision mentions in passing the 2023 collapse of Silicon Valley Bank. In the aftermath of that, it was revealed that Rocket Lab, the misleadingly labelled "New Zealand" company and darling of the NZ media and politicians, had $US38 million in that bank. Small change to a multi-billion-dollar US corporation bankrolled by the US military/intelligence complex and its arms manufacturer sidekicks. But, doubtless, Rocket Lab would have been pleased that the US Treasury and Federal Reserve promptly stepped in and guaranteed all the bank's deposits, even the uninsured ones. There wasn't a peep about the Nanny State. And nobody was vulgar enough to mention corporate welfare.
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