UBS Credit Suisse rescue is messy but unstoppable

LONDON, April 3 (Reuters Breakingviews) - Very few people seem to want UBS (UBSG.S) and Credit Suisse (CSGN.S) to merge, but it's unlikely that anyone will stop it. Switzerland's Federal Prosecutor has opened an investigation into the state-arranged deal, the office of the attorney general said on Sunday. One focus is the suspicion that insiders may have leaked details to the press, the Financial Times reported. Other hurdles include the fact that a majority of Swiss voters dislike the deal. The country's parliament has scheduled an extraordinary session to discuss emergency measures invoked by the government to force the union through.

Investors, however, are unfazed. Credit Suisse's share price is just 3% below the level where it should be based on the deal terms. The stock would probably be worthless if the deal failed and the government had to wind down the bank instead. The implication is that shareholders are almost certain the transaction will go through. A Credit Suisse 2033 bond , which could be converted to equity and potentially wiped out in a resolution, trades with a 6.4% yield, compared with 13% before the rescue. The lower return implies a high likelihood that it will be absorbed by UBS through the merger.

That seems logical. Prising the two apart just weeks after forcing them together would create havoc in financial markets and potentially put Swiss taxpayers on the hook for more money. That's not an option for the government, however unpopular the deal. (By Liam Proud)

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