UBS buys Credit Suisse for $2 billion to avoid banking crisis

The banking crisis that began with the bankruptcy of the Silicon Valley Bank in the US continues, and this time it reached the Credit Suissethe second largest bank in Swiss and one of the top 30 financial institutions in the world.

The last weekend, UBS, Switzerland’s top lender, has agreed to buy out its rival as part of an emergency bailout to ensure financial stability and protect the country’s economy. The transaction would be completed by the end of this year.

“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement on Sunday. “This acquisition was made possible thanks to the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority and the Swiss National Bank,” he added.

The Credit Suisse purchase was completed for US$2 billion, or US$0.75 a share. This is almost 75% less than on Friday’s close, when the shares were still trading at $2.

According to the Swiss authorities, the bankruptcy of this bank would have caused “irreparable economic turbulence”.

Losses in the last two years

The crisis that almost led to the bankruptcy of Credit Suisse already has a long history and became more acute in the previous days. In the last two years, the shares of the entity that dates back to 1856 have lost around 84% of their value, and in 2022 they recorded a loss of US$7.9 billion.

By contrast, UBS shares rose 15% in the same period and posted a profit of $7.6bn in 2022. Its stock value at Friday’s close was $65bn.

Will strengthen Swiss banking

According to Colm Kelleher, Chairman of UBS, “The combination of the two banks strengthens UBS’s position as a world leader in wealth management with more than US$5 trillion invested in assets in the most attractive growth markets.”

In addition, Kelleher affirms that it reinforces the position of the Swiss entity “as the leader of universal banking in Switzerland and extends its position as the most important Swiss global bank.” Likewise, he maintains that by 2027 the merger should generate an annual cost reduction of more than US$8,000 million.

Effects on the market

The purchase of Credit Suisse has not been enough to calm the markets. The rescued bank has fallen more than 60% at the opening of the Zurich Stock Exchange this Monday, while its buyer has also dropped 13%, although it has later moderated the losses to 8%.

The operation was not welcomed by the rest of the banks in Europe either. Shares of European banks plunged 5.8%. German banking giants Deutsche Bank and Commerzbank fell 10.9% and 8.5% respectively, while France’s BNP Paribas fell 8.2%. While the Italians and the Italians UniCredit and Intesa Sanpaolo fell 4.97% and 3.31%.

With information from CNN, AFP and RTVE