Banking crisis

UBS has agreed to buy smaller rival Credit Suisse for 3 billion Swiss francs, in a landmark deal with Swiss regulators playing a key role in the deal as governments try to stem a pandemic threatening the global banking system.

“With the acquisition of Credit Suisse by UBS, a solution has been found to safeguard financial stability and protect the Swiss economy in this exceptional situation,” the Swiss National Bank said in a statement. Swiss Finance will merge the country’s two biggest banks with the Swiss government and market watchdog.

“Credit Suisse” story from the beginning.. This is how the crisis reached!

Depending on what is achieved; The Swiss National Bank provided financial support to UBS and Credit Suisse in the form of loans of up to 100 billion Swiss francs ($108 billion).

The Swiss government said UBS would assume the first CHF5 billion under a government guarantee for losses on the Credit Suisse takeover, and the central government and UBS would assume CHF9 billion of any further losses.

Swiss President Alain Berset announced the acquisition news on Sunday evening in an attempt to avoid further turmoil that has rocked the global banking services market.

The Swiss president described the deal as “an important factor in stabilizing the international financial market. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the global financial system.”

Credit Suisse is classified as one of the globally significant banks by the Financial Stability Board, an international body that monitors the global financial system, meaning regulators believe its disorderly collapse could trigger a tsunami across the financial system. Lehman Brothers 15 years ago.

The Swiss Financial Market Supervisory Authority said the “Credit Suisse” transition would ensure stability for the bank’s customers and the financial markets.

For his part, the Swiss Finance Minister said that the loss guarantee is a form of insurance for “UPS”.

He added that the bankruptcy of an important global bank could have irreparable effects on global financial markets.

Credit Suisse was founded 167 years ago

The deal comes days after Credit Suisse, founded 167 years ago, secured a $50 billion (CHF54 million) loan from the Swiss National Bank. But the move was not enough to stem the flow of deposits, according to news reports.

Credit Suisse faces first lawsuit by US investor over collapse

But many of Credit Suisse’s problems are unique and do not overlap with the vulnerabilities that led to the collapse of Silicon Valley Bank and Signature Bank, whose failures prompted major rescue efforts by the FDIC and the Federal Reserve. As a result, its collapse did not mark the beginning of a financial crisis like 2008.

The deal capped a more volatile week for Credit Suisse on Wednesday after the bank’s biggest investor, Al Ahli Bank of Saudi Arabia, announced it would not invest in the bank again. , which will come into effect if its stock rises by around 10%.

On Friday, the bank’s shares fell 8% to close at 1.86 francs ($2) on the Swiss stock market.

Structural weaknesses

The bank’s current troubles began after Credit Suisse announced on Tuesday that directors had identified “structural weaknesses” in the bank’s internal controls over financial reporting until the end of last year, prompting fears that Credit Suisse could be the next domino to fall.

Although smaller than its Swiss rival UBS, Credit Suisse still exerts significant influence, with $1.4 trillion in assets under management.During his career in wealth management, he is a leading advisor on mergers and acquisitions of international companies.

It is worth noting that “Credit Suisse” did not need government help during the financial crisis of 2008 when “UPS” received government help.

One of the top 30 banks in the world

As one of the world’s 30 most important banks by regulation, any deal involving Credit Suisse would affect global financial markets.

Two senior executives familiar with the matter told Reuters that at least two of Europe’s biggest banks are examining the possibility of a banking crisis spreading to the region and are looking ahead to Federal Reserve intervention. And the European Central Bank should provide additional support.

A source with knowledge of the matter previously told Reuters that UBS had sought $6 billion from the Swiss government as part of a potential deal to buy Credit Suisse. The source indicated that the guarantees would cover the cost of removing parts of Credit Suisse and possible litigation fees.

Another source said earlier that 10,000 jobs would be cut if the two banks merged.

Credit Suisse shares lost a quarter of their value last week. The bank was forced to tap $54 billion in central bank funding as it tries to recover from scandals that have eroded investor and customer confidence.

Read more