UBS to buy Credit Suisse for nearly $3.25B to calm turmoil

By Sanjit Gupta

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UBS, a major player in the banking industry, has agreed to purchase struggling competitor Credit Suisse for approximately $3.25 billion. The acquisition was arranged by regulators as a preventative measure to mitigate any potential disruptions to the global banking system. credit suisse aum 2022,credit suisse share price,credit suisse news twitter,credit suisse news reuters,

Credit Suisse,

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Following the failure of Credit Suisse’s plan to borrow up to 50 billion francs ($54 billion), Swiss regulators have urged UBS to acquire its struggling counterpart. The plan failed to allay concerns among investors and customers, leading to a sharp decline in the shares of Credit Suisse and other banks. The recent collapse of two U.S. banks has further heightened fears about the stability of financial institutions across the globe.

Among the 30 globally systemically important banks, Credit Suisse is one of them and its potential failure has raised concerns among authorities about the potential fallout.

Swiss President Alain Berset characterized the deal as “of great significance for the stability of global finance” when he announced it on Sunday night. He emphasized that an uncontrolled collapse of Credit Suisse could have immeasurable repercussions for both Switzerland and the international financial system. credit suisse aum 2022,credit suisse aum 2022,credit suisse aum 2022,credit suisse share price,credit suisse share price,credit suisse share price,credit suisse news twitter,credit suisse news twitter,

The executive branch of Switzerland’s government, which comprises a seven-member governing body that includes Berset, has passed an emergency ordinance that permits the merger to proceed without requiring shareholder approval.

The sale was described as “a decisive turning point” by Axel Lehmann, the Chairman of Credit Suisse.

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Axel Lehmann commented that the sale marks a historic, somber, and immensely challenging day for Credit Suisse, Switzerland, and the global financial markets. However, he emphasized that the focus now must be on the future, particularly on the 50,000 employees of Credit Suisse, 17,000 of whom are based in Switzerland.

In response to the announcement of the Swiss deal, central banks across the globe have declared coordinated financial measures to stabilize banks in the upcoming week. This includes providing banks with daily access to a lending facility that allows them to borrow U.S. dollars if necessary – a tactic that was widely used during the 2008 financial crisis. Just three months after the collapse of Lehman Brothers in September 2008, such swap lines were utilized for $580 billion. Furthermore, additional swap lines were introduced during market turbulence in the early years.

Max Georgiou, an analyst at Third Bridge, remarked that “today marks one of the most consequential days in European banking since 2008, with ramifications that will be felt across the industry.” He added that these developments could potentially transform not only the course of European banking but also the wealth management sector more broadly.

Colm Kelleher, the Chairman of UBS, celebrated the “enormous opportunities” presented by the acquisition and drew attention to his bank’s “prudent risk culture” – a veiled critique of Credit Suisse’s image of taking more daring and aggressive risks in pursuit of greater profits. He added that the combined entity would establish a wealth management business with a total of more than $5 trillion in invested assets.

Swiss Finance Minister Karin Keller-Sutter expressed regret that the bank, which was once regarded as a model institution in Switzerland and a vital component of the country’s robust financial sector, found itself in this predicament in the first place.

The merger of the two largest and most well-known Swiss banks, both with significant histories dating back to the mid-1800s, represents a significant blow to Switzerland’s image as a worldwide financial hub, as it now stands on the brink of having only one national banking champion.

In the aftermath of the collapse of two prominent American banks last week, which triggered an extensive and urgent response from the US government to forestall further turmoil, Credit Suisse’s plummeting share price this week has only intensified the already edgy global financial markets. The UBS acquisition is a direct result of this uncertain environment.

The President of the European Central Bank, Christine Lagarde, praised the Swiss officials’ quick action, stating that they played a vital role in restoring order to the markets and securing financial stability.

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Lagarde stated that the banks are in a significantly different position now than they were during the financial crisis in 2008, due in part to stricter government regulations.

According to UBS officials, there are plans to either sell parts of Credit Suisse or downsize the bank in the upcoming months and years.

To ensure the completion of the deal, the Swiss government is offering aid and financial backstops worth more than 100 billion francs.

As a component of the agreement, nearly 16 billion francs ($17.3 billion) in Credit Suisse bonds will be eliminated. A distinct type of bond is employed by European bank regulators to provide a capital buffer to banks during periods of difficulty. However, if a bank’s capital drops below a certain level, these bonds are intended to be wiped out, which was triggered as part of this government-mediated agreement.

According to Berset, the Federal Council had been addressing Credit Suisse’s ongoing struggles since the start of the year and held emergency meetings over the last four days due to growing concerns about the bank’s financial stability. The situation caused significant drops in the bank’s stock price and raised fears of a repeat of the 2007-2008 financial crisis.

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Following the announcement of the deal, investors and banking industry analysts were still analyzing its implications. However, at least one analyst was not optimistic about the news as they believed that it could harm Switzerland’s reputation as a global banking center.

Octavio Marenzi, CEO of consulting firm Opimas LLC, expressed concern about the deal’s impact on Switzerland’s global banking reputation. “A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away,” he said in an email.

Credit Suisse is considered to be a globally important bank by the Financial Stability Board, an international organization responsible for monitoring the global financial system. This designation implies that regulators view the uncontrolled collapse of Credit Suisse as potentially leading to systemic ripple effects similar to the Lehman Brothers collapse 15 years ago.

Lagarde pointed out that while the Credit Suisse parent bank is not under European Union supervision, it has subsidiaries in several European countries that are. She reaffirmed her statement from last week after the European Central Bank raised interest rates, saying that the European banking sector is robust, with substantial financial reserves and ample liquidity.

Credit Suisse’s problems are distinct from those that caused the failures of Silicon Valley Bank and Signature Bank, and therefore the rescue efforts by the Federal Deposit Insurance Corp. and the Federal Reserve in those cases do not indicate the beginning of a financial crisis like the one in 2008.

Credit Suisse experienced a highly volatile week, especially on Wednesday when its shares hit a record low. The drop was triggered by the announcement from its largest investor, the Saudi National Bank, that it would not invest more money into the bank to avoid triggering regulations that would take effect if its stake exceeded 10%. The deal announced later in the week marks the end of this tumultuous period.

The shares of Credit Suisse on Friday ended with an 8% drop, closing at 1.86 francs ($2) on the Swiss exchange. The stock has been on a downward trend for a long time now, trading at over 80 francs in 2007. credit suisse news twitter, credit suisse news reuters,credit suisse news reuters,credit suisse news reuters,

Credit Suisse’s current woes started when it announced on Tuesday that it had found “material weaknesses” in its internal controls on financial reporting as of the end of last year. This led to fears that the bank would be the next to fall.

Despite being smaller than its Swiss competitor UBS, CreditSuisse holds a significant amount of influence with $1.4 trillion assets under management. The company operates trading desks across the globe, provides wealth management services for the affluent, and is a major advisor for global companies involved in mergers and acquisitions. Notably, CreditSuisse did not require government aid during the 2008 financial crisis, while UBS did.

CreditSuisse has been trying to raise funds from investors and implement a new strategy to address a range of issues, such as poor investments in hedge funds, frequent reshuffles of its senior management, and a spying scandal that also involved UBS.

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