UBS Group will buy Credit Suisse Group for 3 billion Swiss francs ($3.23 billion) in a historic deal backed by Swiss authorities, as problems in the global banking sector persist
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As reported by Reuters, central banks of the leading global economies joined their efforts on Sunday to spread the banking crisis from spreading. At the same time, Swiss authorities persuaded UBS to buy rival Credit Suisse.
The historic emergency rescue deal will cost UBS 3 billion Swiss francs ($3.23 billion). Meanwhile, up to $5.4 billion or about 60% of the bank’s value registered at markets closure on Friday are wiped out. Last week, Credit Suisse acknowledged “material weakness” which sounded critical on the background of major financial loss recorded in 2022.
As the announcement came amid the wider banking industry crisis triggered by the collapse of US-based Silicon Valley Bank and Signature Bank, the stock of Credit Suisse fell 25% over the week and account holders were withdrawing deposits of more than $10 billion per day.
An emergency loan of nearly $54 billion from the Swiss National Bank couldn’t help the 167-year-old bank. Therefore, Swiss authorities unprecedentedly changed the law to enable the “rescue” deal without the approval of shareholders. The acquisition is expected to finalize by the end of 2023.
UBS Chair Colm Kelleher also mentioned it would wind down Credit Suisse’s investment bank, expecting annual cost savings to reach some $7 billion by 2027.
International efforts to calm the turbulent markets also continued during the weekend. The U.S. Federal Reserve, European Central Bank and other major central banks came out with reassuring statements, claiming that they were taking coordinated action to enhance market liquidity.
Thus, the ECB promised to support European banks with loans if needed. The US Fed established a $25B support fund to aid banks threatened with collapse.
Although the US bank deposit outflows have largely stopped, some issues remain. For instance, First Republic saw its credit ratings downgraded by S&P Global, despite strengthening liquidity with the help of JPMorgan and uninsured deposits worth $30 billion from other large US banks.
