UBS agrees to buy Credit Suisse
Credit Swisse's rival UBS was reportedly in talks to acquire Credit Suisse over the past week.
The backstory: As you may already know, the recent collapse of US lenders Silicon Valley Bank and Signature Bank had a ripple effect on the banking industry and European markets. And the biggest player to feel the burn is Swiss bank Credit Suisse, which has been around for over 167 years. It was already facing turmoil after a string of scandals and some financial weaknesses. Then, the US banking crisis brought it under even more scrutiny.
More recently: Even though Credit Suisse received a massive 50 billion Swiss francs (US$53.7 billion) lifeline from the Swiss National Bank to support it, it seems that wasn’t enough to shore up investor confidence. So, investors have been selling off shares, and there are concerns that this could lead to a larger financial crisis.
The development: Credit Swisse's rival UBS was reportedly in talks to acquire Credit Suisse over the past week. The bank's officials and UBS execs were working around the clock to iron out the deal's details, including what will happen to Credit Suisse's investment arm and how the government will backstop it all.
Regulators have urged UBS to come up with a solution that will prevent any potential crisis of confidence. It looks like UBS was hoping the Swiss government would help by assuming some of the legal costs and potential losses, which could add up to around US$6 billion.
Financial Times reported on Sunday that UBS has agreed to buy Credit Suisse for over US$2 billion. One proposed approach would have UBS absorb the bank's asset and wealth management arms while divesting its investment bank. The details of the deal are still emerging, so this story is still developing.
"This is not a voluntary action, this is a shotgun wedding, and it's being done in order to restore financial stability," said Mohamed El-Erian, chief economic advisor to German financial services firm Allianz, to the BBC. "Without it, Credit Suisse may end up in a death spiral, in which it finds it much harder to undertake its banking activities.
"The investment bank is the bit that most people want to spin-off," said James Athey, investment director at Abrdn. "That's likely where a lot of these exposures are. So that's the challenge that needs addressing."
"People are actually moving their money around, all these banks are going to look fundamentally different in three months, six months," said Keith Noreika, vice president of Patomak Global Partners and a Republican former US comptroller of the currency.
"A merger would pose a very high systemic risk for Switzerland and also create a dangerous Monopoly for the Swiss citizens," said Vincent Kaufmann, CEO of Ethos, a group representing investors who own over 3% of Credit Suisse's shares, to CNBC.