UBS to Buy Credit Suisse for Nearly $3.25B in Effort to Calm Global Banking System

Swiss banking giant UBS will purchase rival Credit Suisse in a nearly $3.25 billion deal organized by banking regulators in an effort to calm the global banking system after a week of turmoil.

Summary

Swiss banking giant UBS will purchase rival Credit Suisse in a nearly $3.25 billion deal organized by banking regulators in an effort to calm the global banking system after a week of turmoil due the collapse of two US banks.

• Government regulators in Switzerland pushed for UBS to take over its smaller Swiss rival after Credit Suisse’s plan to borrow up to $54 billion failed to quell the investor panic or reassure Cred Suisse’s customers.
• The central bank of Switzerland said, “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” and regulators were able to secure the deal before markets opened on Monday.
• Karin Keller-Sutter, the Swiss finance minister, said the deal was not a bailout but a “commercial solution” to prevent the bankruptcy of Credit Suisse, which “would have had a huge collateral damage – on the Swiss financial market also internationally.”

• CNN noted the $3 billion deal for Credit Suisse is about 60% less than what the bank was work when markets closed on Friday. Credit Suisse’s shareholders will be largely wiped out in the rush deal.
• The New York Times reported the Federal Reserve and the Swiss central bank are working with other major global central banks to make sure funds remain available throughout the global financial system as bank failures in America and Europe strain the entire global banking system.
• As Politico observed, “Highlighting the urgency of securing a deal for the bank before markets open on Monday, Swiss authorities adjusted laws to allow further provision of liquidity by the Swiss central bank, while the government agreed to provide additional guarantees.”

• The New York Post noted shares of Credit Suisse fell by more than 25% over the last week. The run on Credit Suisse resulted in the withdrawal of more than $10 billion a day before the Swiss government announced the UBS takeover.
• “The deal between the twin pillars of Swiss finance is the first megamerger of systemically important global banks since the 2008 financial crisis when institutions across the banking landscape were carved up and matched with rivals, often at the behest of regulators,” according to the Wall Street Journal.
• Per Fox News, Elon Musk had a one-word response to the new UBS secured a $100B line of credit: “Wow.” Fox News continued, “The deal comes as concerns continue to mount over the potential collapse of Credit Suisse, which saw its stock price plunge and deposit outflows continue last week, despite receiving a $54 billion financial lifeline from the Swiss National Bank to bolster its liquidity.”

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© Dominic Moore, 2023