What happens now after UBS takeover of Credit Suisse?

UBS has completed a cut-price US$3.25 billion takeover of rival bank Credit Suisse in a bid to prevent a potential financial crisis. 

Banking regulators worked round the clock over the weekend to secure the deal, which has been backed by the Swiss government. 

At its peak, Credit Suisse had been valued at around US$80bn. 

The deal comes after the US lenders Silicon Valley Bank (SVB) and Signature Bank both collapsed within a matter of days, triggering concerns of a crash across the globe.

What happened to Credit Suisse?

Credit Suisse was Switzerland’s second-biggest lender and one of the biggest banks in the world. 

But beneath 167 years of illustrious history, several cracks have begun to show in recent years.

Unlike UBS, Credit Suisse did emerge from the financial crisis of 2008 without a government bailout, but the ensuing period has been tainted by scandal and losses totalling billions of dollars. 

Things came to a head in 2021 as the bank was forced to try and cut down on its exposure to troubled supply-chain lender, Greensill Capital. In March 2021, Credit Suisse confirmed it had suspended four private investment funds created by Greensill which contained US$10bn in securities, triggering the latter’s collapse. 

Just a few weeks later, it became clear the banking giant faced significant losses from its exposure to Archegos Capital Management, prompting serious questions of its strategy. 

A sell-off of Credit Suisse shares ensued as the firm axed its Head of Investment Banking and Chief Risk Officer. 

Things went from bad to worse last year, beginning with the resignation of Chairman Antonio Horta-Osorio over Covid rule breaches. He had been hired to steady the ship just eight months prior. 

In June 2022, Credit Suisse was found guilty of involvement in money laundering relating to a Bulgarian drugs ring, while new CEO Ulrich Koerner struggled to win over investors with his strategic review. 

Then, against a backdrop of waning customer confidence in Credit Suisse, the Saudi National Bank suggested last week it would not be increasing its own investment.

Shares plummeted and the Swiss heavyweight said it would take out a US$54bn loan from the Swiss National Bank to shore up liquidity.

However, this failed to prevent mass withdrawals and Credit Suisse was soon past the point of being saved. 

Has UBS takeover of Credit Suisse helped avert a crisis?

While regulators and the Swiss government worked at admirable speed to secure UBS’ takeover of Credit Suisse, a damaging ripple effect was being seen across the globe on Monday morning.

Stock markets in both the UK and Asia fell, with London’s FTSE 100 and FTSE 250 plunging by as much as 6.2% at one stage, before recovering. Japan’s Nikkei 225 and Hong Kong’s Hang Seng Index dropped 1.4% and 2.6% respectively. 

Shares in UBS suffered as well, declining by 13% before recovering to around 8%.

Oil and gas prices also fell significantly as investors scaled back on potentially risky assets. 

Meanwhile, the merger of UBS and Credit Suisse is likely to spell thousands of job losses given their huge combined presence across the globe. 

Nevertheless, in the UK, the Bank of England has welcomed UBS’ takeover, claiming it would “support financial stability”, while the German finance ministry said its own system was “stable”. 

Financial authorities in the US say they are also in favour of the deal. 

Nigel Green, CEO of global financial consultancy firm, deVere Group, asserted the situation could actually prove beneficial to financial markets. 

“The events of the past week or so have sent global markets reeling as investors feared a credit crunch last seen during the 2008 financial crisis.

“Despite the shockwaves, we expect the banking crisis could ultimately prove to be beneficial for global markets.”

He continued: “The emergency lifelines being thrown to banks by regulators and governments appear to have halted contagion within the sector, largely containing the crisis from hitting other firms and other sectors.

“It underscores the commitment to do whatever it takes to avert another wholesale crash. This brings the confidence and certainty that markets crave.”