UBS buys Credit Suisse: UBS bank announces takeover of Credit Suisse

BERN, Switzerland — Banking giant UBS is buying its smaller rival Credit Suisse to avoid further turmoil in the global banking market, Swiss President Alain Berset said Sunday night.

Swiss President Alain Berset, who did not specify the value of the deal, called the announcement “very broad for the stability of international finance. The uncontrolled collapse of Credit Suisse will have unintended consequences for the country and the international financial system. “

Credit Suisse has been designated by the Financial Stability Board, the international body that oversees the global financial system, as one of the world’s systemically important banks. This means that regulators believe that its uncontrolled collapse will lead to unrest throughout the financial system, similar to the collapse of Lehman Brothers 15 years ago.

Sunday’s press conference followed the collapse of two major US banks last week, prompting a strong reaction from the US government aimed at preventing further banking panic. However, global financial markets are under pressure as the share price of Credit Suisse began to plummet this week.

The 167-year-old Credit Suisse has already received a $50 billion (54 million Swiss franc) loan from the Swiss National Bank, which briefly caused a rally in the bank’s share price. However, according to news reports, this move was not enough to stop the outflow of deposits.

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However, many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that led to the collapse of Silicon Valley Bank and Signature Bank, whose failures led to significant rescue efforts from the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their decline does not necessarily signal the onset of a financial crisis like the one that occurred in 2008.

The deal ended a highly volatile week for Credit Suisse, especially Wednesday, when its shares plunged to an all-time low after its biggest investor, the National Bank of Saudi Arabia, said it would no longer deposit money with the bank to avoid violating rules. which will work if its share grows by about 10%.

On Friday, shares fell 8% to close at 1.86 francs ($2) on the Swiss exchange. The shares have suffered a long decline: in 2007 they traded at over 80 francs.

The current troubles began after Credit Suisse said on Tuesday that managers identified “significant weaknesses” in the bank’s internal controls over financial reporting as of the end of last year. This fanned fears that Credit Suisse would be the next domino.

Although Credit Suisse is smaller than its Swiss rival UBS, it still wields significant influence, managing $1.4 trillion in assets. The firm has significant sales teams around the world, serves the rich and wealthy through its wealth management business, and is the principal M&A advisor to global companies. Notably, Credit Suisse did not need government bailouts in 2008 during the financial crisis, while UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a massive half-percentage hike in interest rates to try to curb persistently high inflation, saying Europe’s banking sector is “resilient” and finances are strong.

ECB President Christine Lagarde said that during the financial crisis, banks “are in a very different position compared to 2008”, partly because of more stringent government regulation.

The Swiss bank is pushing to raise money from investors and roll out a new strategy to overcome a host of challenges, including unfavorable bets on hedge funds, repeated reshuffling of its top management and a UBS spy scandal.