Sinking banks: Now, UBS takes over rival Credit Suisse for $3.25 bn; 9k jobs to go
Virendra Pandit
New Delhi: With the Swiss government assuring to provide USD 9 billion to help UBS meet the possible losses while taking over nearest rival Credit Suisse, and the Swiss National Bank providing USD 100 billion of liquidity to facilitate the deal, UBS Group on Sunday agreed to take it over for USD 3.25 billion.
With this, the 166-year-old Credit Suisse collapsed in the biggest bank fall since the 2008 global financial crisis in the wake of the Lehman Brothers meltdown. It closely followed the fall of three US-based banks this month that pushed Washington to take prompt decisions and arrest the possible contagion.
The fresh banking merger has created significant overlaps. Together, they employed almost 125,000 people at the end of 2022, with about 30 percent of the total in Switzerland. Now, nearly 9,000 Credit Suisse employees may lose their jobs.
The media reported that Swiss regulators brokered the UBS-Credit Suisse deal to halt the decline in customer confidence in the global banking system.
After the deal, UBS may write down Credit Suisse’s AT1 bonds worth USD 17.3 billion.
According to a report by the Wall Street Journal (WSJ), the deal would create a banking giant that accounts for 30 percent of Switzerland’s domestic loans and deposits.
Credit Suisse, a Zurich-based bank, was founded in 1856 to finance the expansion of Swiss railroads. Before its collapse, it was Switzerland’s second-largest bank by assets, next only to UBS, which owns it now.
The bank had two main businesses—managing money, and creating investment products for wealthy clients worldwide. In recent weeks, it tried to spin off its investment arm, marred by scandals and heavy financial losses.
Presumably, UBS bailed out Credit Suisse to avert its own collapse if the contagion spread. Reports said while regulators wanted to curb panic, UBS has long been a part of any state-backed solution for Credit Suisse. That was why talks between the two banks, which started on Wednesday, ended quickly over the weekend.
According to reports, because of Credit Suisse’s falling fortunes, the Swiss authorities rushed the deal before Asian markets opened on Monday. On Friday alone, the shares of the bank fell 8 percent. In the last week, its shares fell 26 percent. Credit Suisse also saw withdrawal demands worth USD 10 billion on a single day last week, making regulators worried this could spark a contagion in the global banking system.
After the March 10 collapse of Silicon Valley Bank in California triggered a major sell-off of bank shares in global markets, Credit Suisse also saw its price fall 26 percent in the last week. In February, it had already fallen 32 percent.
On Wednesday last, its largest shareholder Saudi National Bank, which holds 9.9 percent of stocks, refused to add any more investment because of regulatory rules. The same day, the Swiss regulators announced to provide liquidity to Credit Suisse if required. Soon, the bank announced it would use a USD 50 billion lifeline from the Swiss National Bank, which lifted its shares on Thursday but fell again on Friday.
The crisis began in 2021 when Credit Suisse lost over USD 10 billion after an asset management company, Archegos Capital Management collapsed and loans it gave to the supply chain network, Greensill Capital, were also defaulted upon. This huge loss exceeded the bank’s current market cap of USD 8 billion.
Besides, Credit Suisse also saw some of its top managers change in quick succession since 2020, hitting its credibility.
