Takeover – UBS Buys Credit Suisse
The current banking crisis has progressively gotten more worrying as time passes. Systemic issues didn’t seem to be a concern when Silicon Valley Bank collapsed, but the sentiment became vastly different when Credit Suisse started to go under. Credit Suisse is deemed as a systemically important bank in the world, and its collapse would create a dire financial situation for the entire globe.
Because of this, someone needed to step in to prevent a larger crisis from occurring, and it was none other than UBS, the rival of Credit Suisse. UBS agreed to buy Credit Suisse for just above $3 billion, the first time two systemically important banks have merged since the recession in 2008. Additionally, the Swiss government will provide UBS with $100 billion of liquidity to complete the deal and $9 billion to backstop losses that the bank endures, considering that Credit Suisse’s market cap was $8.556 billion at Friday’s close. Regulators scrambled to get the deal done as soon as possible due to confidence drastically falling in the world’s banking system, a key factor when it comes to the health of the sector. For Credit Suisse specifically, they witnessed $10 billion in customer outflows almost every day last week, which is never a good sign. Things have been downhill for the bank since the Archegos and Greensill failures, and the recent wave of bank failures has been the last straw. Along with the acquisition, a group of central banks across the world have announced an international lending operation to backstop liquidity issues across the globe. This is likely not the last we’ll see regarding the banking saga, and it provides the Federal Reserve with a messy canvas to deal with in their rate decision this week.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
