Credit Suisse shares slide after rival UBS buys it for $3.2 billion
Shares in Credit Suisse fell on Monday after Swiss authorities cut a deal with larger rival UBS to acquire the troubled bank at a lower price. But European bank stocks and the broader market rose as investors watched whether moves to shore up banks would prevent further turmoil in the global banking system.
Shares in Credit Suisse, troubled by questions over its internal controls, fell 60 percent in a day after UBS said it would buy fellow Swiss bank at a lower price. 3 billion Swiss francs ($3.25 billion). Credit Suisse’s stock was down 53 percent as of 11:08 a.m. ET, trading at 93 cents a share.
Swiss regulators then ordered the buyout to prevent further turmoil. Collapse of two American banks. The acquisition was announced late on Sunday, in a sign that Swiss authorities were working on a behind-the-scenes deal to resolve the issue before markets opened.
There is still uncertainty over how the deal will play out for the combined bank. Analysts say some of the previous forced bank mergers have not worked out well for shareholders in the long run.
“Only time will tell how this shotgun wedding is received,” said Neil Shearing, group chief economist at Capital Economics.
UBS shares initially fell on the Swiss stock exchange but rose more than 6% in afternoon trade. The deal added to volatility in other European bank stocks, which fell in early trade while benchmark indexes rose, before some pared their losses. Germany’s Deutsche Bank, France’s BNP Paribas and Italy’s UniCredit rose, while London-based Barclays sank 3 percent.
Takeover by UBS
Swiss authorities urged UBS to take over its smaller rival. Credit Suisse failed to reassure investors and consumers after the central bank’s plan to borrow up to 50 billion francs ($54 billion) last week. Shares in Credit Suisse and other banks fell last week after the failure of two banks in the U.S. raised questions about other potentially vulnerable global financial institutions.
Many of Credit Suisse’s problems were unique, and unlike the weaknesses that brought down Silicon Valley Bank and Signature Bank in the US, it has faced a range of problems in recent years, including bad bets on hedge funds, its frequent top management changes and the espionage scandal involving UBS.
Analysts and financial leaders say safeguards are stronger than they have been since the 2008 global financial crisis and that banks around the world have plenty of cash and support available from central banks. But risks to the deal, losses from some investors and concerns about Credit Suisse’s falling market value could renew concerns about the banks’ health.
Tobias Straumann, a professor of economic history at the University of Zurich, said the merger was the right move because the U.S. bank collapse and the threat to Credit Suisse “are creating an international banking crisis.”
“The markets are very nervous, and I think an additional crash in Switzerland will cause a lot more problems,” he said.
Now, the focus will be on whether problems arise in other banks or in parts of the financial system, Shearing said.
“Crisis management is like a strange game – as soon as the current fire goes out, a new one starts,” Scheering said.
The “too big to fail” bank
Credit Suisse is among 30 financial institutions recognized as systemically important banks globally, and officials were concerned about the consequences if it failed.
UBS is bigger but Credit Suisse has considerable influence, with $1.4 trillion in assets under management. It has significant trading desks around the world, caters to the wealthy through its wealth management business, and is a major mergers and acquisitions advisor. However, Credit Suisse, unlike UBS, weathered the 2008 financial crisis unscathed.
Switzerland’s executive branch passed an emergency ordinance allowing mergers to be executed without shareholder approval.
As part of the deal, about 16 billion francs ($17.3 billion) of high-risk Credit Suisse bonds will be written off, leaving investors with heavy losses. This has raised concerns about the market for these bonds and other banks holding them.
The combination of two of the largest and most famous Swiss banks, each dating back to the mid-19th century, undercuts Switzerland’s reputation as a global financial center – on the brink of having a single national banking champion. puts on
Collapse of two American banks
The deal follows the collapse of two major US banks last week, which sparked a sharp and sweeping response from the US government to prevent further panic.
In an effort to shore up the global financial system, the world’s central banks announced coordinated measures to stabilize banks, including access to credit facilities for banks to borrow US dollars if they needed them. This practice was widely used during the 2008 crisis.
UBS officials said they plan to sell parts of Credit Suisse or downsize the bank.
To support the deal, the Swiss central bank is providing a loan of up to 100 billion francs and the government is providing another 100 billion francs as a backstop if needed.
As the market tries to figure out what happens next after the merger, Prof Straumann said he would not be surprised. Issues for regional banks After further interest rate hikes in Europe, as happened with medium-sized banks in the US.
“Europe’s banking system has not fully recovered from the crisis in 2008,” he said. “It’s better than before, sure, but it’s weak.”