The Swiss authorities have no choice but to push UBS to overstep its bounds, due to the enormous pressure exerted by Switzerland’s main economic and financial partners who fear for their financial positions, according to Blake.
Switzerland’s largest bank, UBS, acquired its troubled rival, Credit Suisse, according to Swiss President Alain Berset, who confirmed that the best option is to “restore confidence”, while the Central Bank announced the provision of liquidity amounting to 100 billion francs for the two banks.
On Sunday, the Swiss president confirmed in a press conference in the presence of the heads of the two banks, Colm Kelleher, representing UBS, and Axel Lehmann, representing Credit Suisse, that this solution “is not crucial for Switzerland only (…) but for the stability of the entire financial system” in the world.
Swiss Finance Minister Karin Keller-Sutter declared at the press conference that the bankruptcy of Credit Suisse would have caused “irreparable economic damage,” and added, “Switzerland must carry out its responsibilities beyond its borders.”
The value of the deal is three billion Swiss francs (3.02 billion euros) payable in the form of shares, or 0.76 francs per share, after the value of Credit Suisse shares on Friday was 1.86 Swiss francs.
European Central Bank President Christine Lagarde welcomed the “quick action” of the Swiss authorities.
The merger deal between the two giant banks, both of which are among the 30 banking institutions that are classified as too big to fail, had to be completed before the stock market opened at 8 am GMT Monday to avoid a wave of panic.
Observers hope that the move will be enough to spare the markets on Monday a widespread panic.
– Race towards the abyss –
The banking sector is under great pressure since major central banks raised interest rates in an effort to control inflation. Several institutions failed to prepare for the current risks after they had been benefiting from financing with low interest for years.
The recent bankruptcy of Silicon Valley Bank in the United States and other regional US banks exacerbated investor fears and prompted them to sell the bonds of banks considered weak links.
Credit Suisse has gone through two years that witnessed a number of scandals that exposed “fundamental weaknesses…in internal control”, according to management’s own admission.
Despite his management’s efforts to promote a three-year restructuring plan, it has not been successful.
According to the Financial Times and Blick, the bank’s customers withdrew CHF10 billion in deposits in a single day late last week, despite it receiving a CHF50 billion loan from the Swiss central bank.
According to the Minister of Finance, UBS will benefit from a government guarantee of about 9 billion francs to address any problems that may arise in Credit Suisse portfolios.
The central bank also agreed to provide liquidity of up to 100 billion Swiss francs to UBS and Credit Suisse.
UBS is beginning to reap the rewards of its efforts after spending several years recovering from the shock of the 2008 financial crisis and the massive government bailout.
The competition authority can also object to the takeover formula.
Discussions centered on the fate of the Swiss branch of Credit Suisse, which is one of the profitable entities within the group that lost 7.3 billion Swiss francs last year and expects to record “significant” losses in 2023.
The branch provides banking services to individuals and small and medium enterprises. One way analysts mention is to take it public, which would avoid mass layoffs in Switzerland.
In this context, the Union of Bank Employees in Switzerland “demanded” on Sunday to include the social partners in the discussions, given the “enormous” risks to employment.
The branch provides banking services to individuals and small and medium enterprises. One avenue analysts point to is an IPO, which would avoid mass layoffs in Switzerland.
Two years of scandals
Credit Suisse has gone through two years with a number of scandals that exposed “fundamental weaknesses… in internal control”, according to management’s own admission.
For its part, the Markets Supervisory Authority (Finma) accused him of “serious breach of his prudential obligations” through the bankruptcy of Grisel, which was an indication of the beginning of his setbacks.
Meanwhile, UBS, which had spent several years recovering from the shock of the 2008 financial crisis and massive government bailout, was beginning to reap the rewards of its efforts. According to a number of media outlets, the bank had no intention before the weekend to embark on the adventure of acquiring Credit Suisse.
Faster and stronger
In October, Credit Suisse unveiled a wide-ranging restructuring plan that envisions cutting 9,000 jobs by 2025, more than 17 percent of its workforce.
The bank, which employed 52,000 people at the end of October, plans to separate investment banking from the rest of its activities to refocus on more stable services, including wealth management.
But as Blake says, “everything points to a Swiss solution this Sunday. And when the stock exchange opens Monday, Credit Suisse may be history.”