UBS and Credit Suisse pact stabilizes key source for mortgage financing

Credit Suisse Group AG’s UK headquarters was located in Canary Wharf, London, UK on Monday, March 20, 2023. European stocks fell on Monday as UBS Group AG’s purchase of Credit Suisse Group AG failed to quell fears about global banking turmoil. However, it later played a part in a recovery that saw stocks rise. Photographer: Jason Alden/Bloomberg. The $3.2 billion government-backed offer by Switzerland’s UBS Group AG to buy Credit Suisse Group AG is a relief for the U.S. Mortgage Market in part because the two companies only have a limited relationship to it, but also because it stabilizes European financial institution that support industry funding. “European banks are being protected and that is important because they provide a large amount of warehouse financing,” Jon Van Gorp, chair of law firm Mayer Brown, stated. Credit Suisse’s $3.2 billion government-backed offer to buy its troubled competitor Credit Suisse is a relief to the U.S. market in part because the two companies have some limited ties to it, but more importantly because it stabilizes European financial institutions that broadly support industry funding. Fitch Ratings reported that SPS held a portfolio of servicing rights related to approximately 942,000 residential mortgages, with an unpaid principal balance in excess of $179.5 million as of September 30, 2022. Fitch Ratings also reported that Credit Suisse Securities (USA), LLC ranked fourth in the category of primary underwriters in the small residential mortgage-backed bond market. It had a portfolio of servicing rights tied to around 942,000 residential mortgages with an unpaid principal balance of $179.5 billion as of Sept. 30, 2022. Whalen’s Institutional Risk Analyst report shows that Credit Suisse retained $20 million in Ginnie Mae assets, and SPS in the deal. SPS did not respond to an inquiry to confirm the deadline. The news of the Credit Suisse-UBS agreement was “very welcome” in terms the stability it brings to European banks as well as the acquired company’s U.S. Mortgage Market ties in the short term. However, there are concerns about whether the buyer will continue to be involved in housing finance. According to data from Recursion, Credit Suisse has been reducing its involvement in UBS’s U.S. residential mortgage lending servicing and lending. It has a small portfolio of servicing for mortgages backed government-sponsored enterprises Fannie Mae or Freddie Mac and less than 1% of lending. The acquiring company has also distanced itself from the U.S. residential mortgage market since the Great Recession, when it and others were subject to legal and regulatory actions. The crisis came after a period in which the private-label loan market was underperforming due to weak underwriting. Credit Suisse has also been subject to similar actions regarding its legacy RMBS activities, but UBS has withdrawn even further. UBS appears to have mainly kept a hand on the commercial mortgage-backed securities markets, where it is the 11th biggest bookrunner with a 2.9% market share. Some believe that UBS and Credit Suisse don’t have enough stakes in the U.S. market for securitizations that have government backing. These older low-rate versions were recently factored in to the demise of Silicon Valley Bank. This market is different from smaller private-label RMBS. It has been recovering from SVB worries due to government intervention in America. Nicholas Gunter, cofounder and chief solution officer at Infima Technologies (a data and analytics company that specializes in predicting behavior of borrowers, securities, and markets), stated, “The market would likely rebound quickly even if Credit Suisse exits mortgages.”