GENEVA, March 20 (AP) — Banking giant UBS AG will buy smaller rival Credit Suisse in a $3.2 billion deal to avoid global banks, UBS President Alain Berser said late Sunday. The industry market was further turbulent.
The deal, Berset said, is “significant for international financial stability. An uncontrolled failure of Credit Suisse would have incalculable consequences for the national and international financial system.”
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The Swiss Federal Council, a seven-member governing body that includes Berset, passed an emergency decree allowing the merger to proceed without shareholder approval.
Credit Suisse chairman Axel Lehmann called the deal “a clear turning point.”
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“This is a historic, sad and challenging day for Credit Suisse, Switzerland and the global financial markets,” Lehmann said, adding that the focus now was on the future, especially for Credit Suisse’s 50,000 employees, 17,000 of whom name in Switzerland.
UBS chairman Colm Kelleher hailed the “tremendous opportunity” presented by the acquisition and highlighted his bank’s “conservative risk culture” – a subtle jab at Credit Suisse’s culture , a culture known for more bluffing, aggressive gambling and bigger payoffs. The combined group would create a wealth manager with more than $5 trillion in total invested assets, he said.
Swiss Finance Minister Karin Keller-Sutter said the committee “regrets that the bank, once a model Swiss institution and part of our strong geographical position, has completely fallen into this situation.” situation.”
The merger of two of the largest and best-known Swiss banks, each with storied histories dating back to the mid-19th century, has been a thunderbolt for Switzerland’s reputation as a global financial center – making it a single national champion. banking.
The deal comes after the collapse of two of the largest U.S. banks last week sparked a frenzied and widespread U.S. government response to prevent any further banking panic. Still, financial markets around the world have been on edge since Credit Suisse’s shares began plunging this week.
European Central Bank President Christine Lagarde praised the “swift actions” of Swiss officials, saying they “helped restore orderly market conditions and ensure financial stability”.
During the financial crisis, she said, banks were “in a completely different position than they were in 2008”, partly because of tighter government regulation.
While UBS is buying Credit Suisse, UBS officials have said they plan to sell some of their stake or shrink the bank in the coming months and years.
The Swiss National Bank agreed to lend up to 50 billion Swiss francs ($54 billion) to Credit Suisse on Thursday, according to news reports, temporarily boosting its shares, but it wasn’t enough to stem market volatility and stem the drain of deposits.
“We note that liquidity outflows and market volatility suggest that the necessary confidence can no longer be restored and that quick solutions to ensure stability are critical,” Berset said.
On Sunday, the SNB said it would provide 100 billion Swiss francs ($108 billion) in loans, backed by federal default guarantees, to back the deal, which is expected to close by the end of the year.
About 16 billion Swiss francs ($17.3 billion) in Credit Suisse bonds will be sold out as part of the deal. European banking regulators use a special type of bond designed to provide a capital buffer for struggling banks. But the bonds are designed to be emptied if a bank’s capital falls below a certain level, as part of a deal brokered by the government.
The Federal Council has been discussing Credit Suisse’s protracted troubles since the start of the year and called an emergency meeting over the past four days, Berset said, as growing concerns over its financial situation sent its shares sharply lower and raised the stakes. The specter of the 2007-08 financial crisis.
Investors and banking analysts are still digesting the deal, but one analyst took issue with the news because of the potential reputational damage to Switzerland’s global banking image.
“Gone is the nationwide reputation for prudent financial management, sound regulatory oversight and, frankly, somewhat dull investing,” Octavio Marenzi, chief executive of consultancy Opimas LLC, said in an email. returned.”
Marenzi added that he expected Switzerland’s direct democratic government model could lead to court and voting challenges to the deal, potentially leading to more confusion.
Credit Suisse has been designated as one of the world’s leading banks by the Financial Stability Board, the international body that oversees the global financial system. That means regulators believe its uncontrolled failure would have a ripple effect across the financial system, not unlike the collapse of Lehman Brothers 15 years ago.
Credit Suisse’s parent bank is not regulated by the EU, but it has entities in several regulated European countries. Lagarde reiterated what she said last week after the central bank raised rates – that European banks are resilient, with strong financial reserves and plenty of cash readily available.
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, which led to major bailout efforts by the FDIC and the Federal Reserve. Therefore, their collapse does not necessarily herald the start of a financial crisis similar to what happened in 2008.
The deal capped a highly volatile week for Credit Suisse, most notably on Wednesday, when its shares fell to a historic low after its biggest investor, the National Bank of Saudi Arabia, said it would no longer invest in the bank to avoid running afoul of regulations. new low. It will work if its stake increases by about 10%.
Shares in the company fell 8 percent to close at 1.86 francs ($2) on the Swiss stock exchange on Friday. The stock has experienced a long decline: in 2007 it traded at more than 80 francs.
The current troubles began after Credit Suisse reported on Tuesday that by the end of last year managers had discovered “significant deficiencies” in the bank’s internal controls over financial reporting. That fueled fears that Credit Suisse would be the next domino to fall.
Credit Suisse, while smaller than its Swiss rival UBS, still wields considerable influence, managing $1.4 trillion in assets. The firm has significant trading desks around the world, caters to the wealthy and wealthy through its wealth management business, and is a leading advisor on global corporate mergers and acquisitions. Notably, Credit Suisse did not need government aid during the 2008 financial crisis, while UBS did.
The Swiss bank has struggled to raise money from investors and has launched a new strategy to overcome a series of problems, including bad bets by hedge funds, repeated top management shakeups and an espionage scandal involving UBS. (Associated Press)
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