UBS and Credit Suisse both saw their shares jump when the former agreed to an emergency rescue of the latter.
Shares of Swiss banking giants UBS And credit Suisse fell off substantially after a post acquisition, On Monday morning, UBS secured a 3 billion Swiss franc ($3.2 billion) bailout for its troubled domestic rival amid a global banking crisis.
Swiss authorities helped facilitate an “emergency rescue” to address a contagion risk to the global banking system. However, following the development Credit Suisse’s stock plunged a massive 60% at 9:05 am London time. In addition, cross-town banking rivals UBS also experienced a 10% decline in value after acquiring Credit Suisse. In addition, the European Banking Index was down about 2% at the same time. Lenders such as Deutsche Bank, Barclays and ING traded more than 4% lower.
UBS chairman comments on Credit Suisse deal amid falling stocks
Colm Kelleher, chairman of UBS, reflected on Credit Suisse’s growth amid a fall in shares of both the financial superpowers. Kelleher described being part of a cut-price deal to stave off a major banking transition as “attractive” to UBS shareholders. However, the UBS chairman further said that such an appeal would not necessarily offer the same resolution as for Credit Suisse. Instead, Kelleher insisted that “as far as Credit Suisse is concerned, this is an emergency rescue.” He also shed light on the core of the rescue plan. couple,
“We have structured a transaction that will preserve the remaining value in the business while limiting our downside risk. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will allow us to enhance its capital-lite business. will strengthen UBS’s strategy.”
Deal terms could make or kill the troubled bank
Credit Suisse caused major concern for the banking system as the Zurich-based global investment bank was on the verge of an implosion. As it stands, the 167-year-old financial services facilitator has a number of international subsidiaries. In addition, Credit Suisse also had a balance sheet twice as large as that of Lehman Brothers before the latter’s collapse in 2008. Credit Suisse’s balance sheet at the end of 2023 was approximately 530 billion Swiss francs (more than $571 billion).
UBS sees Credit Suisse’s balance sheet as an asset following the acquisition, with the combined bank expected to be a giant lender. In a late Sunday press release, UBS said the combined effort should generate more than $5 trillion in total invested assets. Furthermore, the banking giant said that the combination of banking resources would create “opportunities of sustainable value”.
Neil Shearing, chief economist at Capital Economics Group, described the Credit Suisse acquisition as the best way to put any viability doubts to rest. However, Shearing also pointed out that the details of the UBS buyout agreement could make Credit Suisse better or worse. In his own words, “the devil will be in the details.”
In Monday’s note, Shearing said:
“One issue is that the reported price of $3,25bn (CHF0.5 per share) is equivalent to ~4% of book value and roughly 10% of Credit Suisse’s market value at the start of the year.”
According to The Economist, “this suggests that a substantial portion of Credit Suisse’s $570 billion in assets may be either impaired or considered at risk of becoming impaired.”
Tolu is a cryptocurrency and blockchain enthusiast based in Lagos. He likes to strip crypto stories down to the basics so that anyone anywhere can understand without a lot of background knowledge. When he is not delving deep into crypto stories, Tolu enjoys music, loves to sing and is an avid movie lover.
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