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UBS shares fall after rival Credit Suisse’s emergency bailout

The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.

Arnd Wiegmann | Getty Images News | Getty Images

Shares of Swiss credit And UBS led losses on the pan-European Stoxx 600 index on Monday morning, shortly after the latter secured a 3 billion Swiss franc ($3.2 billion) “emergency bailout” from its embattled domestic rival.

Shares of Credit Suisse tumbled 63% around 8:30 a.m. London time (4:30 a.m. ET), while UBS traded 14% lower. The European banking index fell by nearly 5% at the same time.

The declines come shortly after UBS agreed to buy Credit Suisse in a cut-price deal in a bid to stem contagion risk to the global banking system.

Swiss authorities and regulators helped facilitate the deal, it was announced on Sunday, as Credit Suisse teetered on the brink.

Credit Suisse’s size was a concern for the banking system, as was its global footprint given its multiple international subsidiaries. The 167-year-old bank’s balance sheet is about double that of Lehman Brothers when it failed, at about 530 billion Swiss francs at the end of last year.

The combined bank will be a massive lender, with more than $5 trillion in total invested assets and “sustainable value opportunities,” UBS said in a statement late Sunday.

Bank chairman Colm Kelleher said the acquisition was “attractive” to UBS shareholders, but clarified that “as far as Credit Suisse is concerned, this is an emergency rescue “.

“We have structured a transaction that will preserve the value left in the business while limiting our downside exposure,” he added in a statement. “The acquisition of Credit Suisse’s capabilities in the areas of wealth management, asset management and Swiss universal banking will strengthen UBS’s strategy to grow its small-cap business.”

Neil Shearing, chief group economist at Capital Economics, said a full takeover of Credit Suisse might have been the best way to end doubts about its viability as a business, but “the devil will be in the details” of the UBS takeover agreement.

“One problem is that the announced price of $3.25 billion (CHF 0.5 per share) is equivalent to ~4% of book value and about 10% of market value of Credit Suisse at the start of the year. “, he pointed out in a note. Monday.

“This suggests that a substantial portion of Credit Suisse’s $570 billion in assets may be impaired or perceived to be at risk. This could trigger further concerns about the health of banks.”


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