Market wobbles over concern of Credit Suisse and Other Banks
After Switzerland-based bank UBS agreed to save another embattled Swiss lender Credit Suisse for $3.25 billion, banking stocks globally witnessed a bloodbath. The country’s regulators had asked both companies to conclude the transaction to restore necessary confidence and stability in the Swiss economy and the banking sector. However, investors have responded bearishly to both UBS and Credit Suisse.
Credit Suisse’s share price plunged by 58.15%, trading at CHF 0.78 at the time of writing. The stock nosedived by a staggering 64.52% in early trade and even reached an intraday low of CHF 0.66.
UBS Group’s share price has been affected by a similar mood as Credit Suisse, but the selling has been far lower. Currently, UBS stock is trading at $32.95, experiencing a 9.40% drop. In the early deals, the stock dropped by at least 15.96%, with an intraday low of $32.86 compared to the previous closing.
Last week, Credit Suisse stock was around CHF 1.86, and UBS was at $36.37.
On Sunday, UBS and Credit Suisse announced a takeover deal, with UBS being the surviving entity. The Zurich-headquartered bank will acquire Credit Suisse for CHF 3 billion (approximately $3.25 billion).
The move comes after the Swiss National Bank’s plan to provide a 50 billion francs loan to Credit Suisse failed to alleviate investor concerns. The Swiss Federal Department of Finance, the Swiss National Bank, and FINMA requested a merger agreement between UBS and Credit Suisse to restore confidence in the economy and banking system. The below video will help you understand probable causes for weakening health of banks.
Reason for Collapse of multiple banks
Whats the deal between Credit Suisse and UBS?
The merger between Credit Suisse and UBS will give all Credit Suisse shareholders 1 equity share in UBS for their 22.48 shares in Credit Suisse. The exchange ratio represents a merger consideration of CHF 3 billion for all shares in Credit Suisse. The companies aim to complete the merger by the end of 2023.
Notably, the merger will not require approval from the shareholders of UBS and Credit Suisse to enhance deal certainty. Credit Suisse Chairman, Axel P. Lehmann, stated that the merger represents the best outcome under extraordinary circumstances, while UBS Chairman Colm Kelleher referred to the acquisition as an emergency rescue for Credit Suisse.
On Sunday, FINMA informed Credit Suisse that its Additional Tier 1 Capital will be written off to zero, amounting to CHF 16 billion. While the deal is seen as a significant step forward, investors are still processing the announcement.
Such merger deals are a well-known practice, especially after the 2008 financial crisis. According to Bloomberg, three months after Lehman Brothers collapsed in 2008, swap lines were tapped for $ 580 billion. Max Georgiou, an analyst at Third Bridge, believes that these events could alter the course of not only European banking but also the wealth management industry more generally.
Veteran banker Uday Kotak tweeted that the Credit Suisse saga highlights the importance of risk-return assessment in investments over the size of a financial institution, signaling a lesson for all bankers and stakeholders. Read more blogs here
