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 announced on Sunday evening.
Swiss President Alain Berse, who did not specify the value of the transaction, called this statement “one of the great scales for the stability of international finance. The uncontrolled collapse of Credit Suisse will lead to incalculable consequences for the country and the international financial system.”
Credit Suisse is recognized by the Financial Stability Board, an international body that oversees the global financial system, as one of the world’s most important systemic banks. That means regulators believe its uncontrollable failure would cause turmoil 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 frenzied and wide-ranging response from the US government to prevent further banking panics. However, global financial markets have been on edge since Credit Suisse’s share price began to plummet this week.
167-year-old Credit Suisse already received a loan of 50 billion dollars (54 million Swiss francs). from the Swiss National Bank, which briefly caused a rally in the bank’s share prices. However, according to news reports, the move has not been enough to stem the outflow of deposits.
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However, many of Credit Suisse’s problems are unique and do not match the weaknesses that led to the collapse of Silicon Valley Bank and Signature Bank, whose failures led to significant rescue efforts by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their fall does not necessarily mean the beginning of a financial crisis similar to the one that occurred in 2008.
The deal caps a highly volatile week for Credit Suisse, particularly on Wednesday, when its shares fell to a record low after its largest investor, the National Bank of Saudi Arabia, said it would no longer invest in the bank to avoid violating rules that to enter if its share grows by about 10%.
Shares fell 8% to 1.86 francs ($2) on the Swiss exchange on Friday. The shares have been in a long decline: in 2007 they were worth more than 80 francs.
Its current troubles began after Credit Suisse said on Tuesday that managers had found “material weaknesses” in the bank’s internal controls over financial reporting as of the end of last year. That raised fears that Credit Suisse would be the next domino to fall.
Although smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion in assets under management. The firm has significant trading divisions around the world, serves the affluent and affluent through its wealth management business, and is a leading M&A advisor to global companies. Notably, Credit Suisse did not need a government bailout in 2008 during the financial crisis, while UBS did.
Despite the turmoil in banking, the European Central Bank on Thursday approved a major interest rate hike of half a percentage point to try to tame stubbornly high inflation, saying Europe’s banking sector was “resilient” with strong finances.
ECB President Christine Lagarde said banks “are in a very different position than they were in 2008” during the financial crisis, in part because of tighter government regulation.
The Swiss bank is looking to raise money from investors and use a new strategy to overcome a series of problems, including botched bets on hedge funds, repeated top management changes and a spying scandal involving UBS.
UBS buys Credit Suisse: UBS Bank announces takeover of Credit Suisse
Source link UBS buys Credit Suisse: UBS Bank announces takeover of Credit Suisse