Swiss prosecutor opens probe into Credit Suisse takeover

The Swiss public prosecutor’s office has opened an investigation into the state-backed takeover of Credit Suisse by its larger competitor UBS.

Bern prosecutors are investigating possible violations of Swiss criminal law by government officials, regulators and executives at the two banks that agreed on an emergency merger over a hectic weekend last month to avert a potentially catastrophic financial crisis.

“The Office of the Attorney General wants to proactively fulfill their mandate and their responsibility to contribute to a clean Swiss financial center and has set up a monitoring system so that they can act immediately in any situation that falls within their area of ​​activity,” the authority told the Financial Times.

There are “numerous aspects of events surrounding Credit Suisse” that warrant an investigation that must be analyzed to “identify any criminal offenses that may fall within Credit Suisse’s jurisdiction.” [prosecutor]“.

Public prosecutor Stefan Blättler has issued several “investigation orders” to state agencies. His office has also been in contact with the federal and cantons and will likely attempt to interview key officials in connection with the takeover.

The forced marriage of the two banks has sparked outrage in Switzerland: the political parties this month launched a special session of parliament at which a formal commission of inquiry is expected to be elected.

Polls show that more than three-quarters of Swiss citizens oppose the $3.5 billion takeover, which will create a financial giant with total assets of more than CHF 5 trillion ($5.5 trillion).

A majority support legislation to break up the bank, or even measures to claw back bonuses from senior executives who they think 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-member Bundesrat – to extend taxpayer-backed financial guarantees to UBS and silence potential shareholder opposition.

The Federal Council issued an ordinance to wipe out more than CHF16 billion of so-called hybrid AT1 subordinated debt from Credit Suisse to facilitate the takeover while preserving some value for shareholders.

The measure angered some large international fixed income investors and raised concerns among international regulators about its impact on other banks’ ongoing fundraising.

Some of the investors concerned have pledged to take the Swiss government and financial regulators to court over the decision.

Bern has insisted the urgency of the situation over the past month has left him few options. Credit Suisse saw a dramatic deterioration in its ability to access liquidity in the days leading up to the conclusion of the March 19 bailout, the government said.

According to Finance Minister Karin Keller-Sutter, a state takeover of Credit Suisse or its orderly dissolution in a process known as a “resolution” were not viable alternatives to the takeover due to the intolerable financial risks for taxpayers.

Shareholders of both UBS and Credit Suisse – who were denied a say by the government decree – will have an opportunity to raise grievances at the annual meetings of both banks next week.