El-Erian Says Credit Suisse-UBS Deal 'Not Clean' But Best Of Available Options

Zinger Key Points
  • He noted the deal dominated other two options which was either nationalization or trying to wind down the bank.
  • The economist, however, believes the rescue could be considered a bailout.
  • Credit Suisse said 16 billion Swiss francs ($17.24 billion) of its additional tier 1 debt will be written down to zero.

Allianz chief economic adviser and noted economist Mohamed El-Erian reportedly said Credit Suisse Group AG's CS deal with UBS Group AG UBS was not the best solution but still dominated the two other options available.

"It shows you the complexity of what they had to do. Look this was not the best solution but it dominated the other two which was either nationalization or trying to wind down the bank," El-Erian told Bloomberg TV. "It’s not clean but of the available options, this was the best one that they could have had.”

Also Read: How To Invest In Startups

Earlier, UBS agreed to pay 3 billion Swiss francs ($3.25 billion) in stock to acquire Credit Suisse. Under the terms, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they hold, equating to a purchase price of 0.76 Swiss francs ($0.82) per share.

Bailout: The economist, however, said the rescue could be considered a bailout. "The phrase ‘bailout’ has become such an awful phrase that everybody’s avoiding it. They’re going out of their way to say it’s not a bailout but then they can’t explain why money is being put to work," El-Erian noted.

He argued it was a bailout because "they’re dealing with [a] systemically important bank.”

"Of course, you’re going to always be dealing with [a] systemically important bank at the time of market turmoil. That’s by definition what happens when you have a systemically important bank in trouble. But they just don’t want to use that phrase," he said.

Credit Suisse said on Sunday 16 billion Swiss francs ($17.24 billion) of its additional tier 1 debt will be written down to zero on the orders of the Swiss regulator FINMA as part of its rescue merger with UBS.

Read Next: First Republic Bank Downgraded By S&P Further Into Junk Territory Despite $30B Deposit Infusion

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: Analyst ColorNewsMarketsBanking crisisMohamed El-Erian
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!