After the laboriously negotiated takeover of the ailing Credit Suisse by the major Swiss bank UBS, there is still unrest on the international financial markets. Most of the major Asian stock exchanges fell on Monday. The leading German index Dax also showed a minus before the start of trading.
Both the billion-dollar deal in Switzerland and the measures taken by several central banks to provide liquidity to the financial system did little to counter fears of a possible banking crisis. However, the losses were limited after a significant decline in the past week. The mood for the banks remains battered. The euro initially barely reacted on Monday morning.
UBS takes over the smaller local rival for three billion Swiss francs (a good 3 billion euros). In addition, it is responsible for losses of up to five billion francs. There is also a state loss guarantee of CHF 9 billion and liquidity commitments of up to CHF 200 billion.
Support from the National Bank and the State
The Swiss National Bank (SNB) is supporting the transaction with liquidity assistance and granting the banks a loan of up to CHF 100 billion. In addition, the SNB could grant Credit Suisse a liquidity aid loan of up to CHF 100 billion secured by a default guarantee from the federal government. The Swiss government promised UBS a guarantee of CHF 9 billion. Other central banks welcomed the measures in an initial reaction.
A takeover of the second largest Swiss bank Credit Suisse by the larger UBS is the most significant bank merger in Europe since the financial crisis 15 years ago. It means the end for the 167-year-old Credit Suisse, whose headquarters are across from its bitter rival UBS on Zurich’s Paradeplatz. This was preceded by a marathon of negotiations in which the two banks and top representatives from politics and the supervisory authorities took part. State and supervisory authorities were concerned with preventing a wildfire.
The Swiss government in Bern was under considerable pressure to stabilize the situation and support Credit Suisse. Because Credit Suisse is one of the world’s largest asset managers and is one of the 30 globally systemically important banks whose failure would shake the international financial system.
Swiss President Alain Berset said “the Federal Council is convinced that the takeover is the best solution to restore confidence”. Credit Suisse has lost customer confidence and liquidity had to be guaranteed. The transaction is important for the stability of the Swiss financial center, it said. SNB President Thomas Jordan emphasized that reputation is central to the Swiss economy.
Finance Minister Karin Keller-Sutter said the federal government had given a guarantee of CHF 9 billion to cushion Credit Suisse risks. “The taxpayers have little risk” – any other scenario would have incurred more costs. You have a private partner and a solid bank that is taking over Credit Suisse. The minister emphasized that it was not a state rescue. The federal government only gave a guarantee.
UBS Chairman of the Board of Directors Colm Kelleher spoke of a huge opportunity for UBS. The combination of both banks strengthens the position. The Swiss Financial Market Supervisory Authority (Finma) welcomed the takeover solution and the measures taken by the federal government and the Swiss National Bank (SNB). At Credit Suisse there was a risk of insolvency, even if the bank was still solvent, it said.
Course to record low
Credit Suisse had recently suffered from a significant loss of investor confidence. The share price had fallen to a record low after the bank’s largest investor ruled out providing further capital and the institution continued to struggle with cash outflows.
According to UBS, the merger to form a new industry giant will create a financial institution with more than $5 trillion in assets under management. No statements could be made about possible job cuts, it said on Sunday evening. Together, the two institutes employ around 120,000 people.
The balance sheet total of UBS with more than 72,000 employees amounted to the equivalent of 1,030 billion euros in 2022, and that of Credit Suisse with a good 50,000 employees to the equivalent of 535.44 billion euros. UBS had made a profit of $7.6 billion in 2022 (currently $7.07 billion). Credit Suisse, on the other hand, reported a loss of CHF 7.3 billion (EUR 7.4 billion).
