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Shares of Credit Suisse fell 60.5% on Monday after banking giant UBS said it would buy its troubled Swiss rival for nearly $3.25 billion in a deal orchestrated by regulators to try to prevent further turmoil in global banking. . system.
Shares of UBS also fell nearly 5% on the Swiss stock exchange.
Swiss authorities have urged UBS to take over its smaller rival after central bank Credit Suisse’s loan plan failed to reassure investors and customers last week. Shares in Credit Suisse and other banks fell last week after the collapse of two US banks raised questions about other potentially weak global financial institutions.
“Only time will tell how this quick wedding will be received,” said Neil Shearing, chief economist at Capital Economics.
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Markets remained nervous on Monday, despite attempts by regulators to restore calm. In the US, the Federal Deposit Insurance Corporation reported late Sunday that New York Community Bank had agreed to buy a significant portion of failed Signature Bank in a $2.7 billion deal.
World stock markets collapsed, and European bank shares fell by more than two percent. Wall Street futures fell one percent.
Many of Credit Suisse’s problems were unique and different from the flaws that led to the collapse of Silicon Valley Bank and Signature Bank in the US. spy scandal involving UBS.
Security measures have become tighter since the 2008 global financial crisis, and banks around the world have plenty of cash and support from central banks, analysts and financial leaders say. But worries about the risks of the deal, losses for some investors and a fall in Credit Suisse’s market value could renew worries about the health of the banks.
“Containing crises is a bit like kicking a mole, starting new fires as they put out existing ones,” Shearing said. “The key question next week will be whether there will be problems in other institutions or parts of the financial system.”
Credit Suisse is one of 30 financial institutions known as globally systemically important banks, and authorities were concerned about the impact of its failure.
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“The uncontrolled collapse of Credit Suisse will lead to unforeseen consequences for the country and the international financial system,” Swiss President Alain Berset said when announcing the deal on Sunday evening.
UBS is bigger, but Credit Suisse wields significant influence, managing $1.4 trillion in assets. He has major trading desks around the world, serves the wealthy through his wealth management business, and is a major M&A advisor. Credit Suisse survived the 2008 financial crisis unaided, unlike UBS.
The Swiss chief executive issued an emergency ruling allowing the merger without shareholder approval.
The deal will buy back about 16 billion francs ($17.3 billion) of higher-risk Credit Suisse bonds. This has raised concerns about the market for these bonds and the other banks that hold them.
The merger of two of Switzerland’s largest and most famous banks, each with a storied history dating back to the mid-19th century, is a blow to Switzerland’s reputation as a global financial center, putting it on the cusp of becoming a unified national banking system. leader.
The deal follows the collapse of two major US banks last week, prompting a strong US government response aimed at preventing further panic.
In an effort to strengthen the global financial system, the world’s central banks have announced coordinated steps to stabilize banks, including access to a line of credit for banks to borrow US dollars if they need them, a practice widely used during the 2008 crisis.
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Credit Suisse chairman Axel Lehmann called the UBS sale “a clear turning point.”
“This is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for global financial markets,” Lehmann said on Sunday, adding that the focus now is on the future and what lies ahead for Credit Suisse’s 50,000 employees – 17,000 of them. their. which are located in Switzerland.
Colm Kelleher, chairman of UBS, hailed the “huge opportunity” from the takeover and highlighted his bank’s “conservative risk culture” – a subtle blow to Credit Suisse’s reputation as a more desperate gambler looking for bigger profits. He said the combined group would create an asset management company with over $5 trillion in total assets invested.
UBS officials said they plan to sell part of Credit Suisse or reduce the size of the bank.
To support the deal, the Swiss central bank is providing a loan of up to 100 billion francs, with the government providing another 100 billion francs of support if necessary.
European Central Bank President Christine Lagarde praised the “quick action” of Swiss officials, saying they “helped restore orderly market conditions and ensure financial stability.”
She reiterated that the European banking sector is strong, with large financial reserves and plenty of cash. The parent bank Credit Suisse is not under European Union supervision but has branches in several European countries.
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Last week, when the ECB raised interest rates, she said that during the financial crisis, banks were “in a very different position compared to 2008,” in part because of tighter government regulation.
Investors and banking industry analysts were still digesting the deal, but at least one analyst suggested it could tarnish Switzerland’s global banking image.
“The nationwide reputation for prudent financial management, robust regulatory oversight and, frankly, being somewhat tough and boring about investments has been erased,” Octavio Marenzi, CEO of consulting firm Opimas LLC, said in an email.
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