Credit Suisse shares fell 63% in early trading on Monday after UBS announced it would buy the troubled bank in a multi-billion dollar deal backed by the Swiss Central Bank’s $100 billion emergency loan facility. It plummeted to new lows.
Credit Suisse shares recovered some of their initial losses on Monday morning, up 59 on the day as investors digested news that UBS would take over a struggling peer in a state-owned takeover at the time of the report. % fell.
The rescue deal would see UBS buy 167-year-old Credit Suisse for about $3.23 billion and absorb losses of up to $5.4 billion.
“With UBS’s acquisition of Credit Suisse, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss National Bank (SNB) said in a statement.
Credit Suisse is one of 30 financial institutions globally known as systemically important banks (G-SIBs).
“The chaotic collapse of Credit Suisse would have devastating consequences for the country and the international financial system,” Swiss President Alain Berset said on Sunday, adding that it would be “one of the major steps towards international financial stability.” ‘ said. ”
An emergency ordinance was needed to allow the UBS-Credit Suisse merger to proceed without shareholder approval.
“Best results available”
Credit Suisse said in a statement that until the deal is finalized, it is business as usual for the beleaguered bank.
“Until the merger is complete, Credit Suisse will continue to operate in its normal course and will work with UBS to implement restructuring measures.”
Axel Lehmann, Chairman of the Board of Credit Suisse, said in a statement that a merger with UBS is the best solution.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome.
“This has been a very difficult time for Credit Suisse, and the team has worked tirelessly to address many key legacy issues and implement new strategies, but today we have enduring results. We are forced to arrive at a solution that brings
To facilitate the acquisition, the Swiss Central Bank provided UBS with around $100 billion in liquidity support.
“The provision of sufficient liquidity will enable both banks to access the liquidity they need,” the SNB said in a statement, adding that the details of the credit line will be backed by a federal default guarantee. Not readily available, except to be
News of the emergency takeover prompted central banks around the world, including the U.S. Federal Reserve, to take concerted steps to stabilize banks, including deploying swap lines to allow banks to borrow US dollars when needed. announced the move.
UBS shares fell 10% in Monday trading. It was a sharp move after a day of massive selling in Asian financial markets as early investor optimism about efforts to stem the banking crisis faded.
Investor attention has shifted to the heavy blow some Credit Suisse bondholders will suffer from the UBS acquisition.
Swiss financial regulator FINMA said the takeover transaction caused a “full write-down” of additional Credit Suisse Tier 1 (AT1) bonds, valued at around $17 billion, and the bank’s core Said capital will be boosted.
Massive bond write-downs add to fears of other major risks, including contagion, the fragile state of US regional banks and challenges for central banks in trying to contain inflation and financial risks.
European bank shares tumbled in early trading Monday as investors digested news of an emergency takeover of Credit Suisse.
JPMorgan said UBS stands to benefit in the long term from the deal, but the write-down on the AT1 bond would affect other European banks.
“We believe this AT1 write-down by a systemically important bank will have a negative impact on the overall AT1 market for European banks, as well as the banks’ overall funding profile and cost of equity,” JPMorgan strategists said. there is,” he said.
An index of 600 European bank stocks fell as much as 6% in early Monday trading, but has since recovered some losses. By around 6:30 a.m. New York time, the index was down 1.5% was traded.
The index has fallen about 16% this month after the recent failures of several U.S. banks sparked contagion fears and a widespread sell-off of bank stocks.
UBS Chairman Colm Kelleher said in a statement that the merger was “attractive” for UBS shareholders and that the transaction would strengthen UBS’s position as a leading asset manager in Europe. rice field.
“This acquisition is attractive to UBS shareholders, but let me be clear, as far as Credit Suisse is concerned, this is an urgent relief,” he said.
“This transaction will benefit our clients and create long-term sustainable value for our investors.”