UBS agrees to rescue troubled Swiss bank Credit Suisse

UBS is taking over Credit Suisse in a rescue deal that will provide stability.
UBS is taking over Credit Suisse in a rescue deal that will provide stability.
UBS has agreed to rescue its troubled Swiss banking peer Credit Suisse, a move that has been welcomed by the Swiss National Bank and ECB alike

Swiss banking group UBS has struck an agreement to acquire its beleaguered peer Credit Suisse for around US$3.25bn – a move which the Swiss National Bank (SNB) says will “secure financial stability and protect the Swiss economy”.

Credit Suisse had been in trouble since the collapse of California’s Silicon Valley Bank (SVB) – a downfall that was brought about by the impact that rising interest rates had on the bank’s investments in US government bonds.

Credit Suisse had admitted finding "material weaknesses" in internal controls around its financial reporting but the latest developments only compounded an already negative situation at the institution, which has been implicated in a number of legal and compliance-related issues including a criminal conviction in Bulgaria for allowing drug dealers to launder money.

After Credit Suisse’s largest investor opted not to provide assistance, the bank was forced to ask the SNB for US$50mn in emergency loans. Now the SNB says both Credit Suisse and

UBS can obtain a ‘liquidity assistance loan’ of up to 100bn francs (US$108bn).

But the rescue deal was not enough to appease the markets, with European banking shares initially falling again this morning before recovering slightly.

What impact will deal have on UBS?

UBS says its agreement to takeover Credit Suisse will create “a leading global wealth manager”. The combined group will have more than US$5tn in total invested assets including US$1.5tn in Europe.

UBS Chairman Colm Kelleher says: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.

“Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”

UBS Chief Executive Officer Ralph Hamers adds: “Bringing UBS and Credit Suisse together will build on UBS’s strengths and further enhance our ability to serve our clients globally and deepen our best-in-class capabilities. The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks.”

The deal was welcomed this morning by the European Central Bank. In a bid to reassure consumers, the ECB says: “The European banking sector is resilient, with robust levels of capital and liquidity.”

What happened at Credit Suisse?

Credit Suisse was forced to admit that it had previously found "material weaknesses" in internal controls around financial reporting, compounding existing problems at the Swiss bank. The week-long saga would ultimately dent banking shares and prompt a takeover at the hands of UBS.

Financial expert Sammie Ellard-King explains in more detail what has happened at Credit Suisse: “Credit Suisse, one of Switzerland's largest banks, has been facing a number of challenges and controversies in recent years. In 2021, the bank faced significant losses due to its involvement with both the Archegos and Greensill scandals.

"The collapse of Archegos, a hedge fund that defaulted on its margin loans, resulted in substantial losses for Credit Suisse. The incident prompted the bank to announce a major overhaul of its risk management practices.

"Credit Suisse was also one of the biggest backers of Greensill Capital, a financial firm that filed for insolvency in 2021. The collapse of Greensill resulted in significant losses for the bank.

"While the recent scandals have raised concerns among investors and the public, it is important to note that Credit Suisse remains a large and well-established financial institution with a strong reputation in Switzerland and around the world. However, the bank's recent challenges underscore the importance of effective risk management and transparency in the financial industry. Investors should always do their due diligence and carefully assess the risks associated with any investment."

Nigel Green, CEO of DeVere Group, says: “The events of the past week or so have sent global markets reeling as investors feared a credit crunch, and other issues, last seen during the 2008 financial crisis. Despite the shockwaves, we expect that the banking crisis could ultimately prove to be beneficial for global markets for several reasons.”

These include that the latest emergency lifelines appear to have contained the problem for now, and that there has been a concerted effort to avoid another major banking crisis, with six major central banks all vowing to boost liquidity and ease pressures in the international financial system.

Will the rescue deal have implications in the US?

Oliver Rust, head of product at independent data aggregator Truflation, says: “It is incredible to see Credit Suisse, formerly one of the world’s most respected and established banks, being sold to UBS at such a loss to investors and shareholders. At the agreed price of around 3bn Swiss francs, this effectively means that every 22 Credit Suisse shares are worth just 1 share in UBS. And, in another historic move for global regulators that are seemingly throwing out all the financial rulebooks, private bond-holders will also be shouldering the burden.
"The hastily brokered deal, designed to steady global markets, has seemingly progressed without shareholder agreement and this is going to leave some of Credit Suisse’s largest investors nursing painful losses.
"Currently, European markets seem somewhat unfazed, and US futures look largely positive. However, yet another major banking collapse is going to keep investors nervous, as is the upcoming FOMC announcement on Wednesday.
"Markets are widely expecting the US Federal Reserve to U-turn on its advertised plan to hike rates by 50bps, however, nothing is certain. With February’s inflation numbers coming in much softer than January’s, though, it is likely we will see rates increase by a smaller 25bps. While the Fed needs to hold markets stable, it also has to get inflation down, and with the latter still over 6%, the Central Bank can’t stop yet.”

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