UBS reports Credit Suisse buyout, stocks plunge on opening
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Despite announcing that UBS, Switzerland's biggest bank, agreed to acquire global investment bank Credit Suisse, UBS and Credit Suisse shares as markets opened.
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A sign displays the name of Credit Suisse on the floor at the New York Stock Exchange in New York, Wednesday, March 15, 2023. (AP)
UBS shares plunged by almost nine percent as markets opened on Monday, a mere day after it was announced that the bank will take over its rival Credit Suisse for $3.25 billion.
Moreover, shares of Credit Suisse opened almost 64 percent lower, well below the UBS takeover price.
After weekend intense talks aimed at preventing a wider international banking crisis, UBS announced it was ready to take over Swiss rival Credit Suisse for $3.25 billion. Meanwhile, Asian shares fell Monday on lingering concerns about the industry.
UBS' original offer to buy Credit Suisse was $1 billion, the Financial Times reported. Swiss authorities were considering changing laws to bypass a shareholder vote on this deal in order to speed up the acquisition.
Swiss laws typically require UBS to engage in consultations with its shareholders over six weeks before making an offer, however, the emergency at hand pushed the government to skip the consultation period and a shareholder vote.
The deal, in which Switzerland's largest bank would acquire the second largest, was critical, according to the Swiss government, in preventing the economic crisis from spreading throughout the country and abroad.
Following a week of turmoil caused by the failure of two US banks, the move was praised in Washington, Frankfurt, and London as one that would strengthen financial stability.
It is worth noting that the takeover was revealed in a news conference Following a tense day of talks at the finance ministry in Bern.
"The best approach for restoring confidence"
Swiss President Alain Berset was accompanied by UBS chairman Colm Kelleher, Credit Suisse counterpart Axel Lehmann, the Swiss finance minister, and the leaders of the Swiss National Bank (SNB) and the financial regulator FINMA.
Berset described the acquisition as the "best approach for restoring the confidence that has been lacking in the financial markets recently" in the rich Alpine nation.
If Credit Suisse went into freefall, it would have had "incalculable consequences for the country and for international financial stability", he said.
Credit Suisse said in a statement that UBS would take over for "a merger consideration of three billion Swiss francs ($3.25 billion)".
Asian stocks fall on new bank fears
Asian stock markets tumbled in early trade Monday, with Hong Kong, Tokyo, Sydney, Seoul, and Singapore all in the red, as a drop in Credit Suisse shares fueled fears of a bank crisis following the failure of two US banks.
Hong Kong's monetary authorities attempted to assuage fears on Monday morning, stating that "exposures of the local banking industry to Credit Suisse are minimal," as the bank's assets account for "less than 0.5 percent" of the city's banking sector.
Despite this, the city's banking stocks fell: HSBC fell 6%, Standard Chartered down 5%, and Hang Seng Bank fell nearly 2%, in line with a global sell-off in the sector due to concerns over lenders' exposure to Credit Suisse-linked bonds.
"Uncertainty could remain high for quite some time, even if recent bank support measures succeed," said analyst Stephen Innes of SPI Asset Management as quoted by AFP.
"Credit Suisse could have caused "huge collateral damage"
Swiss Finance Minister Karin Keller-Sutter acknowledged that bankruptcy for Credit Suisse could have caused "huge collateral damage".
With the "risk of contagion" for other banks, including UBS itself, the takeover has "laid the foundation for greater stability both in Switzerland and internationally", she said.
The deal was welcomed internationally.
The decisions taken in Bern "are instrumental for restoring orderly market conditions and ensuring financial stability," said European Central Bank chief Christine Lagarde.
"The euro area banking sector is resilient, with strong capital and liquidity positions."
US Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: "We welcome the announcements by the Swiss authorities today to support financial stability."
The sentiment was shared by British Finance Minister Jeremy Hunt.
The Fed and the central banks of Canada, Britain, Japan, the EU, and Switzerland announced they would launch a coordinated effort Monday to improve banks' access to liquidity.
On his account, UBS Chairman Kelleher said: "We are committed to making this deal a great success."
"UBS will remain rock solid," he added.
Another massive layoff?
The takeover creates a banking behemoth like Switzerland has never seen before, raising concerns about potential layoffs.
The Swiss Bank Employees Association said there was "a great deal at stake" for the 17,000 Credit Suisse staff, not to mention tens of thousands of jobs outside of the banking industry potentially at risk.
Like UBS, Credit Suisse was one of 30 worldwide Global Systemically Important Banks -- deemed of such importance to the international banking system that they are colloquially called "too big to fail".
