UBS, Switzerland’s largest bank has agreed to buy rival Credit Suisse in a deal that could save the bank but for how long? Earlier this month we have seen major banks teetering on the edge of collapse, banks such as Silicon Valley Bank (SVB), Silvergate Bank, and many others have had a hard time.
It seems these issues were not localized to just the United States of America, it has also spread to Europe and other areas around the globe.
“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement Sunday. It said the rescue would “secure financial stability and protect the Swiss economy.”
The terms of the deal will lead investors out to dry as they would say. UBS is paying 3 billion Swiss francs (USD $3.25 billion) for Credit Suisse. This is 60% less than the bank was worth when the market closed on Friday. The majority shareholder pool will be wiped out, and owners of $17 billion worth of “additional tier one” bonds will get practically nothing a Swiss regular said.
To make matters worse, with a little arm-twisting from the government, a law was changed to remove the approval that shareholders had to make to see whether the deal should go forward. This deal is like someone holding a gun to your head and issuing a take it or leave it offer.
This is a huge miscalculation from Credit Suisse bank’s managers who was managing a 167-year-old generational bank. In 2022 they recorded the worst loss since the last global financial crisis which lowered investors’ confidence in the company.
If this deal never went through, other banks would’ve collapsed and we don’t even know where we would end up.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.
“It is absolutely essential to the financial structure of Switzerland and … to global finance,” he told reporters.
“Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Credit Suisse chairman Axel Lehmann said in a statement.
“This has been an extremely challenging time for Credit Suisse. While the team has worked tirelessly to address many significant legacy issues and execute its new strategy, we are forced to reach a solution today that provides a durable outcome.”
The emergency takeover was agreed to after days of frantic negotiations involving financial regulators in Switzerland, the United States, and the United Kingdom. UBS and Credit Suisse rank among the 30 most important banks in the global financial system, and together they have almost $1.7 trillion in assets.
Let’s see how this affects the rest of the market, this is far from over and probably just the beginning of something new unraveling somewhere.
