The Historic Takeover Of Credit Suisse By UBS: What To Know

UBS is going to take over Credit Suisse after the failure of 2 US banks. The US government is concerned about this as Credit Suisse was one of the top 30 US banks.

UBS is purchasing ailing rival Credit Suisse for over $3.25 billion in an effort to stop further market-shaking turbulence in the global banking sector. 

Alain Berset, the president of Switzerland, described the arrangement as “one of tremendous width for the stability of global banking” when he made the announcement on Sunday evening. 

“The country and the global financial system would suffer immeasurable consequences from an unchecked collapse of Credit Suisse.” The agreement was hailed by the European Central Bank, the Federal Reserve, and the Treasury Department.

10 facts regarding this important agreement

1) In an all-share transaction that involves substantial government guarantees and liquidity provisions, the Swiss bank is paying 3 billion Swiss francs ($3.3 billion) for its rival. The share price represented a 99% drop from Credit Suisse’s 2007 peak.

2) The agreement comes in the wake of the failure of two big American banks last week, which prompted a frenzied, comprehensive response from the American government to head off any additional panic.

3) Credit Suisse bonds worth about 16 billion francs ($17.3 billion) would be eliminated as part of the agreement. A unique kind of bond is used by European bank authorities to give banks a capital buffer during hard times. Yet as part of this government-brokered transaction, a particular amount of a bank’s capital was reached, which would cause these bonds to be canceled.

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4) The merger of the two largest and most well-known Swiss banks, each with illustrious histories spanning to the middle of the 19th century, is a thunderclap for Switzerland’s status as a major international financial hub, putting the country on the verge of having a single national banking champion.

5) The government is concerned about the consequences of Credit Suisse’s failure because it is one of the 30 financial institutions considered to be internationally systemically important banks.

6) After hearing about the Swiss agreement, central banks around the world launched coordinated financial actions to stabilize banks in the upcoming week. For banks wishing to borrow dollars on a daily basis, a facility that was heavily used during the 2008 financial crisis, is also included.

7) These swap lines had been used for $580 billion three months after Lehman Brothers failed in September 2008. Moreover, additional swap lines were launched amid market turbulence at the start of the COVID-19 pandemic in March 2020.

8) Many of Credit Suisse’s issues are distinct and do not relate to the flaws that led to the failure of SVB and Signature Bank, whose failures necessitated a large rescue effort by the Federal Reserve and the Federal Deposit Insurance Corp. Hence, their failure does not inevitably portend the beginning of a financial crisis like the one that occurred in 2008.

9) The bank’s present issues started as a result of Credit Suisse announcing on Tuesday that managers had found “significant flaws” in the bank’s internal controls over financial reporting as of the end of the previous year. Fears that Credit Suisse was going to be the next domino to collapse were stoked by that.

10) The Financial Stability Board, an international organization that oversees the global financial system, has named Credit Suisse as one of the most significant banks in the world.

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This indicates that regulators are concerned that an unchecked failure may cause financial system-wide repercussions similar to those experienced with the collapse of Lehman Brothers 15 years ago.