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UBS and Credit Suisse both saw their shares spiral after the former agreed to an emergency rescue of the latter.
Shares of Swiss banking giants UBS and Credit Suisse plunged substantially following a takeover of the latter. On Monday morning, UBS secured a 3 billion Swiss franc ($3.2 billion) bailout of its troubled domestic rival amid the global banking crisis.
Swiss authorities had assisted in facilitating the “emergency rescue” to preempt a contagion risk to the global banking system. However, Credit Suisse’s stock plummeted by a staggering 60% at 9:05 am London Time following the development. In addition, cross-town banking rivals UBS also experienced an unsavory 10% drawdown in value after acquiring Credit Suisse. Furthermore, the European banking index was down approximately 2% around the same time. Lenders such as Deutsche Bank, Barclays, and ING traded lower by more than 4%.
UBS Chairman Comments on Credit Suisse Deal amid Fallen Shares
UBS Chairman Colm Kelleher weighed in on the Credit Suisse development amid the shares decline of both financial powerhouses. Kelleher described the deal, part of a cut-price deal to stem a larger banking contagion, as “attractive” for UBS shareholders. However, the UBS Chairman further stated that such an appeal does not necessarily pose the same proposition for Credit Suisse. Instead, Kelleher emphasized that “as far as Credit Suisse is concerned, this is an emergency rescue.” Also, shedding light on the core of the rescue scheme, he added:
“We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management, and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses.”
Terms of Deal Could Make or Mar Embattled Bank
Credit Suisse posed great concern for the banking system as the Zurich-based global investment bank teetered on the brink of an implosion. As it stands, the 167-year-old financial services facilitator has numerous international subsidiaries. In addition, Credit Suisse also boasts a balance sheet twice as large as Lehman Brothers’ before the latter’s collapse in 2008. Credit Suisse’s balance sheet came in at roughly 530 billion Swiss francs (over $571 billion) at the end of 2023.
UBS sees Credit Suisse’s balance sheet as an asset following the acquisition, with the combined bank projected to be a massive lender. In a late Sunday press release, UBS said the joint effort should generate over $5 trillion in total invested assets. In addition, the banking giant added that the combination of banking resources would achieve “sustainable value opportunities.”
Capital Economics group chief economist Neil Shearing described the Credit Suisse takeover as the best way to silence any viability doubts. However, Shearing also pointed out that the details of the UBS buyout agreement could leave Credit Suisse better or worse off. In his own words, the “devil will be in the details.”
In a Monday note, Shearing said:
“One issue is that the reported price of $3,25bn (CHF0.5 per share) equates to ~4% of book value and about 10% of Credit Suisse’s market value at the start of the year.”
According to the economist, “This suggests that a substantial part of Credit Suisse’s $570bn assets may be either impaired or perceived as being at risk of becoming impaired.”