UBS at battle with Swiss regulators | USAEMALL.com

One thing to start: A New York jury has found former Wall Street trader Bill Hwang guilty of fraud and market manipulation, more than three years after the implosion of his fund Archegos sent tremors through global equity markets and left major banks nursing billions of dollars in losses.

And one fine to start: Citigroup will pay $135.6mn to US banking regulators for failing to correct long-standing problems in risk control and data management, the latest black eye for it and chief executive Jane Fraser.

In today’s newsletter:

• The war between Swiss regulators and UBS 

• A $1.7bn private credit mystery

• The takeover dance among UK builders

UBS and the Swiss army strife

Switzerland’s reputation for neutrality is being put to the test by a public spat between the biggest players in finance in the normally sedate Alpine nation.

On one side is UBS, the banking behemoth, led by chief executive Sergio Ermotti and chair Colm Kelleher.

Facing them is Switzerland’s all-powerful “trinity” of finance ministry, central bank and regulator Finma.

Just 16 months on from the collapse of Credit Suisse, the two sides who worked so closely on its rescue over a frantic four days of negotiations have fallen out over how to rehabilitate Switzerland’s bruised banking sector.

At the centre of the disagreement is a proposal from finance minister Karin Keller-Sutter and Switzerland’s Federal Council to make banks hold more capital against their foreign subsidiaries. As the country’s biggest and most global lender, UBS would be hardest hit by the measure.

UBS is “seriously concerned” by the potential for additional capital requirements, according to Kelleher, while Ermotti has argued that there are “too many uninformed, populist and fear-mongering voices” claiming that the bank is too big for Switzerland.

Keller-Sutter has made the debate personal by criticising Ermotti’s pay.

The 64-year-old former Merrill Lynch investment banker became Europe’s highest-paid bank boss this year when his overall potential package was raised to SFr14.4mn ($15.9mn).

“I cannot comprehend certain sums,” said Keller-Sutter, who added that it would take 30 years for her to earn a similar amount based on her SFr473,000 salary as a Swiss cabinet member.

But while the public nature of the dispute between the most powerful figures in Swiss finance is surprising, some within Zurich suspect relations behind closed doors are more cordial.

“You are seeing quite a bit of shadowboxing between people who are trying to establish their authority,” a banker who was involved in the Credit Suisse negotiations told the FT’s Owen Walker.

“There is a lot of posturing going on but in the end, sense will prevail.”

The plurality of Pluralsight loan marks

The speedy demise of Vista Equity Partners’ $3.5bn takeover of Pluralsight has captivated Wall Street, and now comes a new twist in the saga.

DD readers following the debacle know Vista has marked the 2021-era software deal to zero, wiping out its nearly $2bn in equity investment. Vista has also roiled the private credit world by trying to borrow additional money against Pluralsight’s assets to make interest payments.

But while Vista’s loss is clear for now, DD’s Eric Platt and Amelia Pollard report that lenders who are in talks to take the keys of the company from Vista face their own risk of loss and have widely divergent opinions of what it might be.

A club including Blue Owl, Ares Management and Golub Capital lent Vista $1.7bn to buy the maker of educational training videos for software developers. But they have differed significantly in valuing the loan, highlighting the risk that marks on some private credit deals may be untethered from reality.

Ares and Blue Owl marked the debt down to 84.9 cents and 83.5 cents on the dollar, respectively, as of the end of March. Golub had valued the loan just below par, at 97 cents on the dollar.

The most conservative mark implies a loss across the lenders of nearly $280mn on the $1.7bn debt package. But Golub’s mark would imply a loss of just $50mn for the private lenders.

Private credit insiders are aghast at the divergent marks and it is raising questions for regulators about the marks of the overall industry. Pluralsight’s non-bank lenders won the deal because traditional banks can’t lend $1.7bn to unprofitable software companies without upsetting regulators.

“It’s an unbelievable issue,” one lender to Vista said. “There are a lot of discrepancies . . . and it’s prevalent across many of these books . . . It’s a bigger issue than Pluralsight.”

Those comments can catch the interest of regulators. Gary Gensler, chair of the Securities and Exchange Commission, expressed a pointed opinion to the FT.

“They are risks that I’ve witnessed personally, like during the Long-Term Capital Management spillovers in 1998,” he said. 

The M&A drama gripping UK homebuilders 

UK housebuilders almost seem to be spending more time working on deals these days than building homes. 

As new home completions fall across the industry (blame high mortgage rates), groups are combining for scale to weather the downturn. Barratt has sealed a £2.5bn deal with Redrow, and private builder Cala is in play as Legal & General looks to sell.

But the most dramatic story has been around Crest Nicholson, an industry problem child long seen as a takeover target. Elliott-owned builder Avant wants to combine in a deal that would see the private company reverse into Crest to form a bigger listed company. Avant is led by Jeff Fairburn, known for a successful run as the boss of major builder Persimmon which led to an embarrassingly large pay packet. 

So far, however, Crest’s board seems to favour a more straightforward all-share takeover deal from rival Bellway. 

After two rejections, Bellway sweetened the deal on Wednesday, upping the value it attaches to Crest’s equity from £667mn to £720mn. Crest’s board likes that number, but there is a month to go before the deadline to seal the deal.

Bellway will want to tread carefully given a history of profit warnings and unexpected costs from issues at Crest’s older building sites. DD, as always, is crucial. 

Job moves

• Rothschild & Co has hired Brandon Aebersold and Parry Sorensen as managing directors on its North America restructuring team. They both join from Lazard. 

• Duration Capital Partners, a spinout of Oaktree’s transportation infrastructure unit, is officially up and running and will be co-led by Emmett McCann and Josh Connor. Oaktree will remain a minority owner.

Smart reads

Too good to be true Vlad Artamonov claimed to have discovered a way to learn which stocks Warren Buffett was buying early, and convinced a roster of investors to back his alleged Ponzi scheme. So far more than $3mn has been lost, writes New York Magazine.

Poor scouting Private equity firm Clearlake Capital Group — the owner of Chelsea Football Club, which is often accused of overpaying for unproven players — is drawing criticism over the value of acquisitions it made at the height of the buyout boom, reports Bloomberg.

Sour deal With all of its money now lost, Carlyle’s roughly $600mn investment in Beautycounter — a skin care brand that people sold at kitchen tables — turned out to be one of the worst investments in the firm’s 37-year history, writes The New York Times.

News round-up

AMD to buy Finnish start-up Silo AI for $665mn to compete with Nvidia (FT)

DiCaprio-backed green finance start-up unravelled on dubious Deals (Bloomberg) 

Crédit Agricole said to lead bidding for SocGen’s Hanseatic Bank (Bloomberg)

Mike Jatania-backed consortium nears deal for Body Shop (Bloomberg)

Biotech investor behind Moderna raises $3.6bn for new ventures (FT)