UBS acquiring smaller rival Credit Suisse

BERN, Switzerland –

Banking giant UBS is buying its smaller rival Credit Suisse in an attempt to avoid further market turmoil in global banking, Swiss President Alain Berset said on Sunday evening.

Swiss President Alain Berset, who did not specify the value of the deal, called the announcement “great latitude for the stability of international finance. The uncontrollable collapse of Credit Suisse will lead to incalculable consequences for the country and the international financial system. “

Credit Suisse has been designated by the Financial Stability Board, the international body that oversees the global financial system, as one of the world’s systemically important banks. This means that regulators believe that its uncontrolled failure would send ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.

Sunday’s news conference followed the collapse of two major US banks last week, prompting a frantic, broad-based response from the US government to prevent further banking panics. Still, global financial markets are on edge after Credit Suisse’s share price began to plummet this week.

Credit Suisse, 167, has already received a $50 billion (54 million Swiss francs) loan from the Swiss National Bank, which briefly sent the bank’s stock prices soaring. However, the move was reportedly not enough to stem the outflow of deposits.

However, many of Credit Suisse’s problems are unique and do not match the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to significant rescue efforts by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their decline does not necessarily herald the beginning of the 2008 financial crisis.

The deal caps a very volatile week for Credit Suisse, especially on Wednesday, when its shares fell to a record low after its largest investor, the National Bank of Saudi Arabia, said it would no longer invest in the bank to avoid sanctions. : would begin if its share rose to about 10%.

Shares fell 8% to 1.86 francs ($2) on the Swiss stock exchange on Friday. The stock has seen a long decline. In 2007 it was selling for over 80 francs.

Its current troubles began after Credit Suisse said on Tuesday that executives had found “significant weaknesses” in the bank’s internal controls over financial reporting as of the end of last year. That fueled fears that Credit Suisse would be the next domino to fall.

Although smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, managing $1.4 trillion in assets. The firm has significant trading desks around the world, serves the wealthy and the affluent through its wealth management business, and is a major merger and acquisition advisor to global companies. Notably, Credit Suisse did not need government support during the financial crisis in 2008, while UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a big, half-percentage-point hike in interest rates to try to curb stubbornly high inflation, saying Europe’s banking sector was “resilient” with strong finances.

ECB President Christine Lagarde has said that during the financial crisis, banks are “in a very different position than they were in 2008”, in part because of tighter government regulation.

The Swiss bank is trying to raise money from investors and develop a new strategy to deal with a number of problems, including bad bets on hedge funds, repeated shakeups at its top management and a spying scandal involving UBS.