UBS buys Credit Suisse amid fallout from US bank collapse

Banking giant UBS has agreed to buy smaller competitor Credit Suisse, Swiss authorities said on Sunday. The historic deal comes as major financial institutions continue to grapple with the aftermath of Silicon Valley Bank’s sudden collapse earlier this month and work to stave off a broader crisis.

“This takeover was made possible with the support of the federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank,” the Swiss National Bank said in a statement. “With the takeover of Credit Suisse by UBS, a solution was found to ensure financial stability and to protect the Swiss economy in this exceptional situation.”

Speaking at a press conference Sunday afternoon to discuss the emergency purchase, FINMA President Karin Keller-Sutter said “Switzerland must take responsibility beyond its own borders,” adding that the deal was reached in an effort to “damage irreparable economic damage.” avoid turbulence in Switzerland and around the world.” Keller-Sutter said the purchase had “laid the foundation for more stability both in Switzerland and internationally”.

Fears about the stability of the global banking system spread across the US and Europe in the wake of the failures of Silicon Valley Bank and Signature Bank, which took place less than two weeks ago and within days. Their closure prompted the federal government, as well as some of the largest US banks, to take rare measures to prop up the finances of institutions threatened by the turmoil.

Credit Suisse received nearly $54 billion from the Swiss National Bank last week as part of those negotiations, while a consortium of 11 major U.S. banks including Bank of America, Citigroup, JPMorgan Chase and Wells Fargo agreed to pay $30 billion dollars in funding for First to provide Republic Bank. These four banks agreed to contribute $5 billion each, while Goldman Sachs and Morgan Stanley each contributed $2.5 billion, and BNY Mellon, PNC Bank, State Street, Truist, and US Bank each contributed $1 billion .

Pledges of emergency funding on Thursday briefly interrupted the ongoing downturn in both banks’ shares, which resumed the following day. On Friday, Credit Suisse shares fell 7% to end the day at $2.01.

A woman walks past the Credit Suisse headquarters in London, Thursday March 16, 2023. Frank Augstein/AP

Shares in Credit Suisse, Switzerland’s second-largest commercial bank, fell 30% on the SIX Stock Exchange after its largest shareholder announced it would no longer invest money in the institution. The bank was struggling before the bankruptcy of US banks sparked fear and suspicion among large investors, and announced on Thursday that it would borrow up to CHF 50 billion from the national bank.

“This additional liquidity would support Credit Suisse’s core business and clients as Credit Suisse takes the necessary steps to create a simpler and more client-centric bank,” Credit Suisse said in a statement at the time.

The precipitous fall in its share prices a day earlier marked a record low for Credit Suisse after the Saudi National Bank told news outlets it would not inject additional funds into the institution as it attempted to circumvent regulations that would come into effect with a Participation in the Swiss lender of over 10%. This upheaval led to an automatic freeze on trading in Credit Suisse shares in the Swiss market and had a significant impact on the shares of other major European banks, with some share prices falling by double digits.

Despite the Swiss National Bank’s move to prop up Credit Suisse’s finances, analysts at Capital Economics said concerns about the institution’s health remain, particularly as it has not been profitable for two years.

Andrew Kenningham, chief economist for Europe at Capital Economics, said in an investor note on Friday that while Credit Suisse has a plan to restore business over a three-year period, “it is uncertain whether markets will last that long.” “.

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