Home Business Historic Deal: UBS Rescues Credit Suisse from Crisis

Historic Deal: UBS Rescues Credit Suisse from Crisis

UBS has agreed to buy smaller rival Credit Suisse for 3 billion Swiss francs, in a historic deal with Swiss regulators playing a key role in the deal as governments sought to stem a contagion that threatened the global banking system.

“With the acquisition of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” it reads in a statement issued by the Swiss National Bank, in which indicated that the central bank is working with the Swiss government and market supervisor Swiss Finance to bring about the merger of the country’s two largest banks.

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According to what has been achieved; The Swiss National Bank has 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 losses in the Credit Suisse acquisition, and the federal government for CHF9 billion and any further losses to UBS.

Swiss President Alain Berset announced news of the takeover on Sunday evening in a bid to avert further turmoil that has rocked the global banking services market.

The Swiss president defined the agreement “an important factor for the stabilization of the international financial market. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and for 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, meaning that regulators believe its disorderly collapse will lead to tsunamis in entire financial system not unlike the collapse of Lehman Brothers 15 years ago.

The Swiss Financial Market Supervisory Authority has said that the “Credit Suisse” transition will ensure stability for the bank’s customers and for the financial markets.

For his part, the Swiss finance minister said that the guarantee of loss is a form of insurance for “UBS”.

He added that the failure of a major global bank could have irreparable consequences for global financial markets.

Credit Suisse was founded 167 years ago

The deal comes days after 167-year-old Credit Suisse secured a $50 billion (Swiss francs 54 million) loan from the Swiss National Bank, which briefly sent the bank’s stock price soaring. . But the move appears to be insufficient to stem the flow of deposits, according to news reports.

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But many of Credit Suisse’s problems are unique to and don’t overlap with the vulnerabilities that led to the collapse of Silicon Valley Bank and Signature Bank, whose failures required major bailout efforts by the FDIC and Federal Reserve. Consequently, its collapse does not necessarily signal the onset of a financial crisis similar to that of 2008.

The deal capped off a very volatile week for Credit Suisse, in particularly on Wednesday, when its shares plunged to an all-time low after the bank’s biggest investor, Saudi Arabia’s Al Ahli Bank, announced it would no longer invest in the bank to avoid regulatory flailing, which would enter in force if its stake increased by about 10%.

Shares of the bank fell 8% on Friday to close at 1.86 francs ($2) on the Swiss stock exchange, an unprecedented drop from more than 80 francs in 2007.

structural weaknesses

The bank’s current woes began after Credit Suisse announced on Tuesday that directors had identified “structural weaknesses” in the bank’s internal controls over financial reporting through 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 asset in management.During his work in wealth management, he is a principal consultant of international companies in mergers and acquisitions.

It is worth noting that “Credit Suisse” did not need government assistance in 2008 during the financial crisis, in one moment in which “UBS” has received government assistance.

One of the top 30 banks in the world

Being one of the top 30 banks in the world in terms of regulation, any deal related to Credit Suisse will affect global financial markets.

Two well-informed senior executives told Reuters 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 eagerly awaiting the intervention of the Federal Reserve (the central bank of the United States) and the European Central Bank to provide more support.

An informed source told Reuters in 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 legal fees.

Another source had said in earlier that 10,000 jobs could be cut in case of merger of the two banks.

Credit Suisse shares lost a quarter of their value last week. The bank has been forced to draw on $54 billion in central bank funding as it tries to recover from scandals that have eroded investor and customer confidence in it.


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