Banks: UBS to buy Credit Suisse, its struggling rival – Economy

The takeover of Credit Suisse by UBS “is not only decisive for Switzerland (…) but for the stability of the entire financial system” worldwide, underlined the President of the Swiss Confederation Alain Berset during a point of press, Sunday, in the presence of the presidents of the two banking giants, Colm Kelleher for UBS, and Axel Lehmann for Credit Suisse.

Finance Minister Karin Keller-Sutter told the press conference that Credit Suisse’s failure could have caused “irreparable economic damage”. “For this reason, Switzerland must assume its responsibilities beyond its own borders. »

The transaction amounts to 3 billion Swiss francs (3.02 billion euros) payable in UBS shares, or 76 cents only for a Credit Suisse share which was still worth 1.86 Swiss francs on Friday evening.

The merger between these giants, which are both part of the very closed club of 30 too big to fail banking establishments, therefore had to be completed and announced in time for the opening of the Asian markets. The hope being that this may be enough to prevent widespread panic.

Race to the abyss

The banking sector has been under stress since the major central banks have raised their rates sharply in an attempt to control inflation. Many institutions have failed to prepare after years of having access to cheap money.

The recent bankruptcy of Silicon Valley Bank in the United States and other regional American banks has increased investor anxiety and prompted them to sell the securities of the banks considered to be the weak links.

This is the case of Credit Suisse, which for two years has gone from resounding scandals to reverses. And despite the efforts of its management to tout a three-year restructuring plan, nothing worked. Investors voted with their feet and the Zurich establishment struggled to access liquidity at reasonable prices.

A lifeline of 50 billion Swiss francs, launched Wednesday by the Swiss Central Bank after a black day on the stock market, gave only a brief respite to the bank. The regulatory authorities and the federal government have had to face immense pressure from Switzerland’s main economic partners to clean up the situation before it contaminates the whole world. According to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in a single day late last week.

Warranties

UBS will benefit from a guarantee of some 9 billion francs from the government which serves as insurance if problems were to be discovered in very specific Credit Suisse portfolios, Karin Keller-Sutter said. The Central Bank also grants a liquidity line of up to CHF 100 billion to UBS and Credit Suisse

UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the rewards of its efforts and it took tremendous pressure from the authorities for management to the bank accepts to put on the habit of the saviour.