The logo of UBS and Credit Suisse in Zurich
banking crisis
For 3 billion Swiss francs
UBS has agreed to buy smaller rival Credit Suisse for 3 billion Swiss francs, in a landmark deal with Swiss regulators playing a key role in the deal as governments sought to stem a contagion threatening the global banking system.
“With the acquisition of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” said a statement issued by the Swiss National Bank, in which it indicated that the central bank is working with the Swiss government and the market supervisor. Swiss Finance to achieve the merger of the two largest banks in the country.
The story of “Credit Suisse” from the beginning.. This is how it reached the crisis!
According to what was reached; The Swiss National Bank provided financial assistance in the form of loans of up to 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse.
The Swiss government said UBS would bear the first CHF5 billion under the government guarantee for the losses in the Credit Suisse takeover, and the federal government for CHF9 billion and any further losses for UBS.
Swiss President Alain Berset announced on Sunday evening the news of the acquisition in an attempt to avoid further turmoil that shook the global banking services market.
The Swiss president described the agreement as “an important factor for stabilizing the international finance market. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the global financial system.”
Credit Suisse is classified by the Financial Stability Board, an international body that monitors the global financial system, as one of the banks of global importance, which means that regulators believe that its disorderly collapse will lead to tsunamis throughout the financial system not unlike the collapse of Lehman. Brothers 15 years ago.
The Swiss Financial Market Supervisory Authority said that the “Credit Suisse” transition will ensure stability for the bank’s clients and financial markets.
For her part, the Swiss Finance Minister said that the loss guarantee is a form of insurance for “UBS”.
She added that the bankruptcy of an important global bank may have irreparable consequences for global financial markets.
Credit Suisse was founded 167 years ago
The deal comes just days after Credit Suisse, which was founded 167 years ago, secured a $50 billion (CHF54 million) loan from the Swiss National Bank, which briefly caused the bank’s share price to soar. But the move appears to be insufficient to stem the flow of deposits, according to news reports.
Credit Suisse is facing the first lawsuit by an American investor over the collapse
But many of Credit Suisse’s problems are unique and do not overlap with the vulnerabilities that led to the collapse of Silicon Valley Bank and Signature Bank, whose failures prompted major rescue efforts by the FDIC and the Federal Reserve. As a result, its collapse does not necessarily signal the onset of a financial crisis similar to that of 2008.
The deal capped a very volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low after the bank’s largest investor, Al Ahli Bank of Saudi Arabia, announced that it would not invest again in the bank to avoid faltering regulations, which would come into effect if its stake rose by about 10%.
On Friday, the bank’s shares fell by 8%, closing at 1.86 francs ($2) on the Swiss Stock Exchange, which is an unprecedented drop, compared to more than 80 francs in 2007.
structural weaknesses
The bank’s current troubles began after Credit Suisse announced on Tuesday that directors had identified “structural weaknesses” in the bank’s internal controls over financial reporting up to the end of last year, sparking fears that Credit Suisse could be the next domino to fall.
Despite being smaller than its Swiss rival UBS, Credit Suisse still wields significant influence, with $1.4 trillion in assets under management. During his work in wealth management, he is a lead advisor to international companies in mergers and acquisitions.
It is worth noting that “Credit Suisse” did not need government assistance in 2008 during the financial crisis, at a time when “UBS” received government assistance.
One of the 30 most important banks in the world
As one of the 30 most important banks in the world in terms of regulation, any deal related to Credit Suisse will affect the global financial markets.
Two well-informed senior executives told Archyde.com that at least two major banks in Europe are studying scenarios for the possibility of the crisis spreading through the banking sector in the region and are looking forward to the intervention of the Federal Reserve (the US Central Bank) and the European Central Bank to provide more support.
An informed source told Archyde.com earlier that UBS requested $6 billion from the Swiss government as part of a possible deal to buy Credit Suisse. The source indicated that the guarantees would cover the cost of liquidating parts of Credit Suisse and potential litigation fees.
Another source had said earlier that 10,000 jobs might have to be cut in the event of the merger of the two banks.
Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank financing as it tries to recover from scandals that have eroded investor and customer confidence in it.