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UBS and the Swiss government announced Friday that they had signed a loss protection agreement, which will take effect once the takeover of Credit Suisse has been completed. The Swiss government will cover losses of up to $9 billion Swiss francs ($10 billion) following UBS’ acquisition of its former rival. This is guaranteed on a “designated portfolio of Credit Suisse non-core assets,” once UBS incurs the first 5 billion Swiss francs in losses. “The priority for the federal government and UBS is to minimise potential losses and risks so that recourse to the federal guarantee is avoided to the greatest extent possible,” the Swiss government said in a statement.
The administration added that it had facilitated the deal to “safeguard financial stability and thus avert damage to the Swiss economy,” but had always agreed to guarantee a portion of losses due to UBS taking over a portfolio of assets that “do not fit its business and risk profile.” In return, the agreement states that, after the takeover, UBS must support the development of Switzerland’s status as a financial centre. The bank has confirmed intentions to keep the headquarters of the merged group in Switzerland for the duration of the loss protection provisions. “UBS will manage these assets in a prudent and diligent manner and intends to minimize any losses and maximize value realization on these assets,” UBS said. UBS Group shares were down 0.2% at 10:00 a.m. London time.

Tether will mine Bitcoin in Uruguay using renewable energy as part of its effort to diversify its revenue mix for the USDT stablecoin. The company announced Tuesday that it plans to invest its resources into developing renewable energy sources. This will be the company’s first venture into the energy sector. Tether is also looking for “experts in the area” to support its expansion into renewable energy. Mining Bitcoin is notoriously power-intensive, requiring a distributed network of computers worldwide to verify legitimate transactions and release new coins. “By harnessing the power of Bitcoin and Uruguay’s renewable energy capabilities, Tether is leading the way in sustainable and responsible Bitcoin mining,” said Paolo Ardoino, CTO of Tether. “Our unwavering commitment to renewable energy ensures that every Bitcoin we mine leaves a minimal ecological footprint while upholding the security and integrity of the Bitcoin network.”
This month, Tether announced shifting its treasury management strategy to start investing in Bitcoin. A commitment has been made by the company to invest up to 15% of its net profits in Bitcoin, mimicking strategies adopted by companies such as Tesla and MicroStrategy. In contrast to Bitcoin and other cryptocurrencies, Tether, also known as the Tether token, is designed to maintain a stable value despite market fluctuations. Among stablecoins, USDT is the largest, with a circulating supply of more than $83.2 billion, according to CoinGecko. It competes with Circle’s USD Coin and Binance’s BUSD.

According to a regulatory filing, UBS estimated a financial hit of around $17 billion from its emergency takeover of Credit Suisse. It said the rushed deal may have affected its due diligence. In a new filing with the U.S. Securities and Exchange Commission (SEC) late Tuesday night, the Swiss banking giant flagged a total negative impact of around $13 billion in fair value adjustments of the new combined entity’s assets and liabilities, along with a potential $4 billion hit from litigation and regulatory costs. However, UBS also expects to offset this by booking a one-off $34.8 billion gain from so-called “negative goodwill,” which refers to the acquisition of assets at a much lower cost than their true worth.
The bank’s emergency acquisition of its stricken domestic rival for 3 billion Swiss francs ($3.4 billion) was brokered by Swiss authorities over the course of a weekend in March, with Credit Suisse teetering on the brink of collapse amid massive customer deposit withdrawals and a plummeting share price. In the amended F-4 filing, UBS also highlighted that the short time frame under which it was forced to conduct due diligence may have affected its ability to “fully evaluate Credit Suisse’s assets and liabilities” prior to the takeover. Swiss governmental authorities approached UBS on March 15 while considering whether to initiate a sale of Credit Suisse in order to “calm markets and avoid the possibility of contagion in the financial system,” the filing revealed. The bank had until March 19 to conduct its due diligence and return with a decision.

Jamie Dimon, CEO of JPMorgan Chase, said Thursday the market is likely to be thrown into panic when the U.S. approaches a sovereign debt default. Dimon told Bloomberg in a televised interview that an actual default would be “potentially catastrophic” for the country. Dimon said he expects the worst-case scenario will be avoided, however, because lawmakers will be forced to respond to growing concerns. “The closer you get to it, you will have panic” in the form of stock market volatility and upheaval in Treasurys, he said. Dimon joined a host of business figures and administration officials in making dire predictions about the consequences of failing to raise or suspend the U.S. debt limit. This would allow the world’s largest economy to default on its bonds. Treasury Secretary Janet Yellen has said the default idea is “unthinkable” and would lead to economic disaster. “If it gets to that panic point, people have to react, we’ve seen that before,” Dimon said. But “it’s a really bad idea, because panic becomes something that is not good,” he added. “It could affect other markets around the world.”
According to Dimon, Morgan, with approximately $3.7 trillion in assets, has been preparing for the possibility of an American default. Such an event would ripple through the financial world, impacting “contracts, collateral, clearing houses, and affect clients definitely around the world,” he said. According to him, the bank’s war room already meets once weekly, but it will move to daily meetings around May 21 and then to three meetings a day afterward. He exhorted politicians from both major U.S. parties to compromise and avoid a ruinous outcome. “Please negotiate a deal,” Dimon said.

The price of cryptocurrencies fell on Monday as investors bet that First Republic Bank’s acquisition could end the financial crisis. This has been the primary driver of Bitcoin’s rally this year. Bitcoin fell about 4.2% to 28,137.76 to start the week and month, according to Coin Metrics. Ether lost 4% to 1,828.81. First Republic was taken over by regulators on Monday, making it the third failure of a U.S. bank this year and the largest since the 2008 financial crisis. JPMorgan Chase will acquire the majority of the deposits and assets of the company. Last week, bitcoin rallied in April as troubles at the bank unfolded. Trading of the cryptocurrency has been choppy, however, as investors straddle the effects of the banking crisis on crypto with high inflation, Federal Reserve policy, a potential recession, and an increasingly bearish narrative building around the U.S. dollar. “It’s unclear whether the banking crisis narrative can continue to be a boon for bitcoin,” said Alex Thorn, head of firmwide research at Galaxy. “Overall, the market lacks clear positive near-term catalysts, with supply issues overhanging bitcoin … That being said, bitcoin accumulation by small addresses is outpacing issuance, and we expect Ethereum staking to increase, each of which provides a supportive supply narrative.”
“Outside of crypto-native factors, we expect a back-of-the-year macro environment to be characterized by tightening, recession, and an expanding multipolarity in the global economy, all of which can be supportive of gold and bitcoin,” he added. The cryptocurrency market has been expected to slow down from its first-quarter rally, although it has gained about 70% for the year after finishing down more than 60%. April marked the first time Bitcoin had a fourth consecutive positive month in two years. “Bitcoin and ether started 2023 inorganically cheap, allowing for plenty of room to move higher off a low-base effect,” Thorn said. “A widening banking crisis became evident in March, and the contrast with Bitcoin’s transparent and decentralized nature provided a further leg up for Bitcoin, while Ethereum’s successful Shanghai upgrade provided a catalyst for ethereum.”

A Standard Chartered note published Monday predicted Bitcoin’s value could reach $100,000 by 2024. Standard Chartered analyst Geoff Kendrick said the collapse of Silicon Valley Bank and other mid-tier U.S. lenders solidified Bitcoin’s status as a “decentralised, trustless, and scarce digital asset.” “We see potential for Bitcoin (BTC) to reach the USD 100,000 level by end-2024, as we believe the so-called ‘crypto winter’ is finally over,” Kendrick said in the report titled “Bitcoin — Pathway to the USD 100,000 level.” “The current stress in the traditional banking sector is highly conducive to BTC outperformance – and validates the original premise for Bitcoin as a decentralised, trustless and scarce digital asset,” Kendrick added. “Given these advantages, we think BTC’s share of the total digital assets market cap could move into the 50-60% range in the next few months (from around 45% currently).” Bitcoin was trading at $27,601.55 as of 9:40 a.m. ET, according to CoinGecko data. The woes of Circle’s USD Coin and other so-called stablecoins, which aim to achieve a 1-to-1 peg to the U.S. dollar, have benefited Bitcoin, Kendrick said.
USDC lost its dollar peg after its issuer Circle revealed exposure to SVB. CoinGecko data shows that the coin’s market value fell to $30.7 billion from more than $43 billion since Mar. 10, when the U.S. government placed the bank into receivership. This, coupled with the stabilization of risk assets and speculation that the Federal Reserve will ease monetary tightening further, means the “pathway to the USD 100,000 level is becoming clearer,” Kendrick said. Bitcoin supporters believe diversifying into digital currency is wise during hard times. As the theory goes, bitcoin has a limited supply of 21 million bitcoins, meaning it should appreciate as demand for alternative assets grows to avoid the effects of high inflation.

The US stock market closed slightly higher on Friday as traders assessed more corporate earnings, but all three major indices finished in negative territory for the week. The Nasdaq lost 0.3% for the week, and the Dow dipped 0.2% to snap a four-week winning streak. The S&P 500 ticked down less than 0.1% for the week. According to FactSet, more than 75% of S&P 500 companies reported so far have exceeded analysts’ earnings expectations. Mega-cap tech like Alphabet and Amazon are on deck for next week’s quarterly results. As of 4:00 p.m. ET on Friday, the S&P 500 was 4,133.52, up 0.09%. Dow Jones Industrial Average: 33,808.96, up 0.07% (22.34 points). Nasdaq Composite: 12,072.46, up 0.11%
In an exclusive interview with Insider, economist Mohamed El-Erian explained the credit squeeze threatening the US economy and the risks of more interest rate hikes. Bloomberg reports US money-market funds saw their assets drop for the first time since last month. According to Larry Summers, the Federal Reserve has inflation on the ropes while lamenting the debt-ceiling fiasco. According to Citi’s chief economist, the US economy could be headed towards a credit crunch that would only prolong a recession. West Texas Intermediate crude oil increased 0.49% in commodities, bonds and crypto, to $77.75 per barrel. Brent crude, oil’s international benchmark, rose 0.59% to $81.58. Gold declined 1.79% to $1,993 per ounce. The yield on the 10-year Treasury rose 2.3 basis points to 3.568%. Bitcoin dropped 3% to $27,255.

Warren Buffett believes there will be more bank failures in the future, but depositors shouldn’t worry. “We’re not over bank failures, but depositors haven’t had a crisis,” the Berkshire Hathaway chairman and CEO told CNBC’s Becky Quick on “Squawk Box” Wednesday from Tokyo. “Banks go bust. But depositors aren’t going to be hurt.” Last month, Silicon Valley Bank and Signature Bank collapsed — respectively, the second and third biggest bank failures in American history. Regulators responded by providing an additional funding facility and backstopping all deposits in the failed lenders. The “Oracle of Omaha” said some of the “dumb” things that banks do periodically became uncovered during this period, including having mismatched assets and liabilities as well as questionable accounting. “Bankers have been tempted to do that forever,” Buffett said. “Accounting procedures have driven some bankers to do some things that have helped their current earnings a little bit and caused the recurring temptation to get a little bit bigger spread on record, a little more than earnings.”
Buffett said that some bankers would continue this behavior, putting some stock shareholders at risk. The 92-year-old investor, however, said there was unnecessary fear and panic about depositors losing their money since the system is designed to safeguard them all. “The costs of the [Federal Deposit Insurance Corp.] are borne by the banks. Banks have never cost the federal government a dime. The public doesn’t understand that,” said Buffett. “Nobody is going to lose money on a deposit in a U.S. bank. It’s not going to happen … you don’t need to turn a dumb decision by managers into a panicking the whole citizenry of the United States about something they don’t need to be panicked about.” He stressed that it’s crucial that banks retain the public’s confidence, and they can lose that confidence in seconds, as highlighted in the recent blowup.