The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.
Arnd Wiegman | Getty Images News | Getty Images
Shares of Credit Switzerland And UBS led losses on the pan-European Stoxx 600 index Monday morning, shortly after the latter secured a 3 billion Swiss francs ($3.2 billion) “emergency rescue” of its embattled domestic rival.
Credit Suisse shares plunged 60% around 9:05 a.m. London time (5:05 a.m. ET), while UBS traded 10% lower.
The European banking index fell nearly 2% around the same time, with lenders such as ING, Deutsche Bank and Barclays all down more than 4%.
The declines come shortly after UBS agreed to buy Credit Suisse as part of a cut-price deal in a bid to contain the risk of contagion to the global banking system.
Swiss authorities and regulators helped make the deal happen, they announced Sunday, as Credit Suisse was on the brink of faltering.
Credit Suisse’s size was a concern for the banking system, as was its global footprint given its many international subsidiaries. The balance sheet of the 167-year-old bank is about twice that of Lehman Brothers when it collapsed, at about 530 billion Swiss francs late last year.
The combined bank will be a huge lender, with more than $5 trillion in total invested assets and “sustainable value opportunities,” UBS said in a press release late Sunday.
The bank’s chairman, Colm Kelleher, said the acquisition was “appealing” to UBS shareholders, but clarified that “as far as Credit Suisse is concerned, this is a bailout.”
“We have structured a transaction that preserves the value remaining in the business while limiting our downside exposure,” he added in a statement. “Acquiring Credit Suisse’s capabilities in asset management, asset management and Swiss universal banking will strengthen UBS’s strategy to grow its capital-depleted business.”
Neil Shearing, group chief economist at Capital Economics, said a full takeover of Credit Suisse was perhaps the best way to allay doubts about the company’s viability as a business, but that the “devil will be in the details” of the UBS buyout agreement.
“One problem is that the reported price of $3.25 billion (CHF 0.5 per share) corresponds to ~4% of book value and about 10% of Credit Suisse’s market value at the beginning of the year,” he stressed. in a note. Monday.
“This suggests that a substantial portion of Credit Suisse’s $570 billion assets may be impaired or viewed as at risk of being impaired. This could spark renewed jitters about bank health.”
