On Monday, Credit Suisse’s shares dropped by 61.95% in premarket trading in Zurich following the announcement that UBS would acquire the 167-year old bank for $3 billion. In contrast, UBS’s shares were down by only 4.73% at 15.81 francs.
The next few hours of trading will provide a better picture of whether the crisis is contained, according to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.
The Credit Suisse crisis was triggered by a confidence crisis, which does not affect UBS. UBS is a bank outside of the turmoil with ample liquidity and a guarantee from the Swiss National Bank and the government.
Therefore, in theory, there is no reason for the Credit Suisse crisis to extend. On Sunday, Swiss regulators orchestrated a package in which UBS agreed to pay 3 billion Swiss francs ($3.23 billion) for Credit Suisse and assume up to $5.4 billion in losses.
The acquisition of Credit Suisse by UBS is significant in many ways. It marks a major consolidation in the Swiss banking industry, as two of the country’s largest banks are joining forces. This consolidation could lead to job losses and branch closures as the new entity looks to streamline operations.
The acquisition is indicative of the current state of the banking industry, which is facing immense pressure from fintech startups, changing consumer preferences, and increased regulations. As a result, banks are looking for ways to cut costs, increase efficiencies, and remain competitive. The acquisition of Credit Suisse by UBS is one way to achieve these goals.
The acquisition underscores the importance of liquidity and stability in the banking industry. Credit Suisse’s liquidity issues and risk management failures were key factors that led to the bank’s downfall.
In contrast, UBS has been able to weather various crises in the past and has a strong track record of managing risk. By acquiring Credit Suisse, UBS is taking on significant risk, but it is also gaining access to Credit Suisse’s assets and customer base.
The acquisition highlights the role of government and regulatory bodies in the banking industry. Swiss regulators played a critical role in brokering the deal between UBS and Credit Suisse.
Along with assuming up to $5.4 billion in losses, UBS is effectively being subsidized by the Swiss government. This intervention underscores the importance of government oversight in ensuring the stability and safety of the banking industry.
The acquisition of Credit Suisse by UBS is a significant development in the banking industry. It highlights the challenges facing banks today and the importance of consolidation, liquidity, stability, and government oversight in ensuring the long-term viability of the banking industry.