Credit Suisse Deal Halted Crisis       03/23 06:17

   

   GENEVA (AP) -- The Swiss central bank hiked its key interest rate Thursday 
and insisted that a government-orchestrated takeover of troubled Credit Suisse 
by rival bank UBS ended the financial turmoil.

   In a statement, the Swiss National Bank said it is providing large amounts 
of support for the deal to merge Switzerland's biggest banks and that the late 
Sunday announcement by the federal government, financial regulators and the 
central bank "put a halt to the crisis."

   "An insolvency of Credit Suisse would have had severe consequences for 
national and international financial stability and for the Swiss economy," said 
Thomas Jordan, chairman of the Swiss central bank's governing board. "Taking 
this risk would have been irresponsible."

   The hastily arranged, $3.25 billion deal aimed to stem the upheaval in the 
global financial system after the collapse of two U.S. banks and jitters about 
long-running troubles at Credit Suisse led shares of Switzerland's 
second-largest bank to tank and customers to pull out their money.

   Swiss authorities urged UBS to take over its smaller rival after the central 
bank's plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) 
last week failed to reassure investors and customers. It was done under 
emergency measure by the executive branch to bypass shareholder approval.

   "The extensive liquidity assistance provided the time needed to find a 
solution to safeguard financial stability," the central bank said in a 
statement. "This solution had to be worked out under considerable time pressure 
in order to be ready before the Asian markets opened this week."

   To support the deal announced late Sunday, the Swiss central bank has said 
it is providing a loan of up to 100 billion francs ($109 billion) and that the 
government is providing another 100 billion francs of support as a backstop if 
needed.

   Jordan said the loans are "not gifts" but are backed by collateral and 
subject to interest.

   The central bank hiked its key interest rate by half a percentage point to 
counter inflation that has risen since the beginning of the year, to 3.4% last 
month.

   It said that was "above the range the SNB equates with price stability" and 
that economic growth is expected to be modest this year, forecasting a 1% 
increase in gross domestic product. The SNB said the global economic outlook 
was uncertain, with the main risks being an economic downturn and adverse 
effects of the turmoil in the global financial sector.

   It comes as central banks around the world are pressing ahead with their 
fight against inflation even as banking sector chaos has created a global 
crisis of confidence in the financial system.

   The U.S. Federal Reserve went ahead with a quarter-point rate hike 
Wednesday, Norway's central bank did the same Thursday and the Bank of England 
is expected to approve a increase after inflation unexpectedly grew last month. 
The European Central Bank raised rates by a half-point last week.

   The ECB and Fed chiefs both voiced assurances that the financial system is 
resilient and that money is safe in banks.

   Adrian Prettejohn, a Europe economist at Capital Economics, said the Swiss 
National Bank "was clearly keen to try to draw a line under the Credit Suisse 
saga."

   "They seem relaxed about any hit to macroeconomic activity from the Credit 
Suisse debacle," he said in a note, pointing to the upgraded forecast for 
economic growth this year.

   Meanwhile, Swiss financial regulators defended how the deal wiped out about 
16 billion francs ($17.3 billion) in higher-risk Credit Suisse bonds, which 
left investors with hefty losses.

   Typically, shareholders face losses before those holding bonds if a bank 
goes under -- a hierarchy that the European Central Bank and Bank of England 
reiterated in statements this week.

   The Swiss Financial Market Supervisory Authority, or FINMA, said Thursday 
that contracts for the higher-risk bonds show that they can be written down in 
a "viability event," particularly if the government offers extraordinary 
support.

   That happened under the executive branch's emergency measures Sunday, which 
also allowed regulators to order a writedown of the bonds, FINMA said.

   Global law firm Quinn Emanuel says it has put together an international team 
of lawyers from Switzerland, the U.S. and the United Kingdom that is in 
discussions about possible legal action with bondholders representing "a 
significant percentage" of the total amount that was issued. The firm convened 
a call for bondholders Wednesday that drew more than 600 participants.