In an effort to prevent future market-shaking turbulence in the global banking system, banking behemoth UBS is purchasing ailing rival Credit Suisse for about $3.25 billion.
After a plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to satisfy investors and the bank’s clients, Swiss authorities pushed for UBS to acquire its smaller rival. Shares of Credit Suisse and other banks fell this week as a result of worries about more potentially unstable institutions in the global financial system raised by the bankruptcy of two U.S. banks.
Axel Lehmann, chairman of Credit Suisse, described the sale as “a clear turning point”
Credit Suisse is one of the 30 financial organizations considered to be globally systemically significant banks, and regulators are concerned about the repercussions if it were to fail.
The deal was “one of great breadth for the stability of international finance,” said Swiss President Alain Berset as he announced it Sunday night. “An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”
The emergency ordinance permitting the merger to proceed without shareholder approval was passed by Switzerland’s executive branch, a seven-member governing body that includes Berset.
Axel Lehmann, chairman of Credit Suisse, described the sale as “a clear turning point.”
“It is a historic, sad, and very challenging day for Credit Suisse, for Switzerland, and for the global financial markets,” Lehmann said, adding that the focus is now on the future and in particular on the 50,000 Credit Suisse employees, 17,000 of whom are in Switzerland.
UBS plans to sell off parts of Credit Suisse in the coming months and years
The world’s central banks planned coordinated financial actions to stabilize banks in the upcoming week in response to news of the Swiss agreement. For banks wishing to borrow dollars on a daily basis, a facility that was heavily used during the 2008 financial crisis, is also included. Such swap lines have been used to borrow $580 billion three months after Lehman Brothers failed in September 2008. Moreover, additional swap lines were launched amid market turbulence at the start of the COVID-19 pandemic in March 2020.
“Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry,” said Max Georgiou, an analyst at Third Bridge. “These events could alter the course of not only European banking but also the wealth management industry more generally.”
UBS officials said they plan to sell off parts of Credit Suisse or reduce the bank’s size in the coming months and years.