Commentary
What happens when one zombie eats another? All the disgusting and fetid zombie parts of the consumed simply move to the consumer. The same is true of zombie banks. When one zombie bank—full of death and corruption but better at hiding it due to superior cosmetics—eats its more visibly ill and compatriot zombie bank, is the underlying rot somehow purified or made whole? Is the world a safer place? The answer is clearly no, and below we explain why. But first some background.
On March 19, Union Bank of Switzerland (UBS) agreed to acquire Credit Suisse (CS) in a “take under” transaction that valued the equity of Credit Suisse at $3.3 billion, a 60 percent discount to Credit Suisse’s closing price on March 17. In addition to the wipe out of most of Credit Suisse’s equity value, $16 billion of Credit Suisse’s bonds “will be written off to zero.” Why shareholders should receive anything—let alone $3.3 billion of consideration—when more senior creditors take a goose egg remains a mystery, and litigation is sure to ensue….