ALTERNATIVE MARKETS UPDATE - END MARCH 2023

The most notable development over the past two weeks was the collapse and subsequent acquisition of Credit Suisse by UBS. After the collapse of Silicon Valley Bank as well as Silvergate and Signature Bank, the banking sector faced substantial drawdowns. Credit Suisse had been under pressure for a while, largely due to prior scandals in which the bank was involved. It started with a spying scandal involving the prior CEO Tidjane Thiam and more importantly being involved in the Archegos Capital and Greensill Capital collapse. This led to substantial losses to the bank. This is especially notable, as the company struggled with its profitability for a while. In 2022 and in early 2023, the bank was already signaling distress as its largest shareholder, Harris Associates, which held nearly 10% sold its entire stake. The Saudi National Bank stepped in and acquired a stake of around 10% in Credit Suisse. The collapse of SVB and the subsequent announcement of the now ex-CEO of Saudi National Bank that they will not further give capital to the bank. While this is not surprising as a larger stake leads to a lot more regulatory issues. Yet, this announcement was interpreted as a lack of confidence in the bank, which led to a bank run. This started the collapse of the bank. The Swiss government then stepped in and looked for a way to save the bank with the goal of keeping the bank in Swiss hands. The final outcome was that UBS will buy Credit Suisse for 3bn CHF and a substantial involvement by the Swiss National Bank that provides liquidity if necessary and alleviate some of the losses UBS may incur following the acquisition. With the challenging integration ahead, UBS also decided to appoint Ermotti as CEO of UBS who led the company from 2011 to 2020 already. 

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RESEARCH PERSPECTIVE VOL. 200 March 2023 Alternative Markets March 2023 The most notable development over the past two weeks was the collapse and subsequent acquisition of Credit Suisse by UBS. After the collapse of Silicon Valley Bank as well as Silvergate and Signature Bank, the banking sector faced substantial drawdowns. Credit Suisse had been under pressure for a while, largely due to prior scandals in which the bank was involved. It started with a spying scandal involving the prior CEO Tidjane Thiam and more importantly being involved in the Archegos Capital and Greensill Capital collapse. This led to substantial losses to the bank. This is especially notable, as the company struggled with its profitability for a while. In 2022 and in early 2023, the bank was already signaling distress as its largest shareholder, Harris Associates, which held nearly 10% sold its entire stake. The Saudi National Bank stepped in and acquired a stake of around 10% in Credit Suisse. The collapse of SVB and the subsequent announcement of the now ex-CEO of Saudi National Bank that they will not further give capital to the bank. While this is not surprising as a larger stake leads to a lot more regulatory issues. Yet, this announcement was interpreted as a lack of confidence in the bank, which led to a bank run. This started the collapse of the bank. The Swiss government then stepped in and looked for a way to save the bank with the goal of keeping the bank in Swiss hands. The final outcome was that UBS will buy Credit Suisse for 3bn CHF and a substantial involvement by the Swiss National Bank that provides liquidity if necessary and alleviate some of the losses UBS may incur following the acquisition. With the challenging integration ahead, UBS also decided to appoint Ermotti as CEO of UBS who led the company from 2011 to 2020 already. Figure 1 shows the stock price of Credit Suisse over the past five years and shows the impact of its continued involvement in scandals and their respective impact on the company’s stock price. Figure 1: Largest Drops in 2-Year Treasury Yields in Two Days Since the Black Monday, Source: Bloomberg, March 2023 The general distress in the banking sector also shakes other markets. With the current market stress, market participants are getting more fearful of a potential recession ahead. In particular the oil market, which is quite sensitive to recessions suffered under the increased volatility. Oil prices have remained relatively stable in 2023 until the collapse of SVB and the early outlook of the Fed which emphasized that inflation takes higher precedence than a potential recession. The collapse of Credit Suisse led oil to slip almost 10$ per barrel in a short time period. While the market recovered slightly after the initial collapses. Another slight drop occurred when the Fed announced another 25bps hikes. Despite further concerns from Deutsche Bank, oil prices recovered some of their previously incurred losses. Figure 2 summarizes the impact of the developments on the oil price. Figure 2: Oil Price Development Amid Banking Stress and Increased Recession Fears, Source: Bloomberg & Goldman Sachs Research, March 2023 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. 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