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Credit Suisse: the ‘merger’ to end banking fear?

After months in the making, Credit Suisse’s house of cards has finally fallen.

This weekend has been dominated by an imminent possible takeover by its rival, UBS.

There were rumblings on Wednesday when it was reported that the Swiss National Bank had stepped in to save the floundering institution. With a $54 billion loan facility, they hoped to patch over the gaping hole of confidence left in the aftermath of the SVB failure. 

The national bank and regulatory board, FINMA, issued a statement on March 15: “The problems of certain banks in the USA do not pose an immediate risk of contagion for the Swiss financial markets. The strict capital and liquidity requirements applicable to Swiss financial institutions ensure their stability. Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks.” 

However, the institution had had issues for a while, which wasn’t enough to stem the tanking stock price. Soon after, reports were flying about an acquisition being explored.

Sale pegged at $1 billion

The Financial Times reported on Sunday that a bank sale was being negotiated with UBS for a meager sum of $1 billion. This has since been rejected, and subsequent numbers concentrated around the vague indication of “significantly more than $2 billion”. Rumors were surfacing about how much that would be throughout Sunday. 

The eventual agreed amount was $3.2 billion, and UBS will be assuming up to $5.4 billion in losses, representatives announced Sunday evening. The bank had been valued at $8 billion on Friday.

Credit Suisse has issued a statement calling the emergency intervention a “merger.” 

Switzerland’s central bank will also be stepping in to help, providing UBS with a guarantee against potential losses worth $9.6 billion and liquidity assistance up to $110 billion.

UBS Chairman Colm Kelleher said in a statement, “This acquisition is attractive for UBS shareholders, but let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue.”

The Swiss National Bank said in a statement that the “exceptional situation” would “secure financial stability and protect the Swiss economy.” 

Their hope to solve the matter before the market opened on Monday has been realized. 

credit suisse

Reaction around the world

Many regulators and officials around the world have applauded their swift action. 

The banking group was regarded as one of the top 30 most important institutions in the world, and without intervention, their failure could have made SVBs fall a mere drop in the pond.

President of the European Central Bank, Christine Lagarde, said she welcomed the “swift action” of the Swiss authorities.

“They are instrumental for restoring orderly market conditions and ensuring financial stability.”

Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen said, “We welcome the announcements by the Swiss authorities today to support financial stability.”

Credit Suisse’s public issues reach beyond current crisis

Credit Suisse must have seen its fall incoming from a mile off as SVB’s panic run made its way across the Atlantic. 

For months, nay, years, executives at the 167-year-old financial institution have been desperately holding operations together with sticky tape, seemingly hoping for better times to come. 

The company faced multiple scandals in recent years. It had significant direct exposure to Archegos Capital and Greensill Capital, whose collapse left the bank with billions of dollars of losses. This affected quarterly earnings throughout 2022, with shares dropping following every announcement. 

To top this, convictions of failing to stop money laundering rattled Credit Suisse in June 2022, and countless reports of fraud, data leaks, and a rumored nefarious client base have plagued the bank. 

In addition, a costly restructuring plan was rumored to have been looming, partly to solve the widening loss margin of last year but also to fix its culture and risk-management policies and practices that had shown fault. 

The recent ripples of global uncertainty in the banking system proved too much for the institution to handle. 

Despite its endless troubles, the bank was seemingly too big to fail. Switzerland was also exploring options to partly nationalize the bank for the institution to continue.

What happens next to the banking juggernaut

The institution vaguely outlined the next steps for UBS’s takeover in statements.

Their official statement said that under the terms of the agreement, all shareholders of Credit Suisse would receive one share in UBS for 22.48 shares in Credit Suisse. Until the consummation of the merger, Credit Suisse will continue to conduct its business in the ordinary course and implement its restructuring measures in collaboration with UBS.

All customer operations are said to continue without interruption. 

Whispers from late last year that the bank was planning to overhaul its investment bank arm may have had some ground. Since UBS agreed to the takeover, some reports have said they have plans to wind down the operations of that area. 

While it is still too early to say for sure, all parties involved have stated their intention to maintain the workforce in Credit Suisse’s operations. 

The world has yet to see if the effort to fire-block contagion and widespread fear in the banking system succeeded. Reuters reported Monday Morning that Credit Suisse’s shares had dropped 62% to a new low while UBS’s had slipped 7.2%

“It should be clear that after more than a week into the banking panic, and two interventions organized by the authorities, this problem is not going away. Quite the contrary, it has gone global,” said Mike O’Rourke, chief market strategist, Jones Trading to Reuters. 

“The reports that UBS is acquiring Credit Suisse will likely magnify Credit Suisse’s problems by moving them to UBS.”

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  • Isabelle Castro Margaroli

    Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.

    Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.