The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.
Arnd Wiegmann | Getty Images News | Getty Images
Shares of Credit Suisse and UBS led losses on the pan-European Stoxx 600 index on Monday morning, shortly after the latter secured a 3 billion Swiss franc ($3.2 billion) “emergency rescue” of its embattled domestic rival.
Credit Suisse shares collapsed by 60% at around 11:20 a.m. London time (7:20 a.m. ET), while UBS traded 5% lower.
Europe’s banking index was down nearly 1.8% around the identical time, with lenders including ING, Societe Generale and Barclays all falling over 2.7%.
The declines come shortly after UBS agreed to purchase Credit Suisse as a part of a cut-price deal in an effort to stem the chance of contagion to the worldwide banking system.
Swiss authorities and regulators helped to facilitate the deal, announced Sunday, as Credit Suisse teetered on the brink.
The scale of Credit Suisse was a priority for the banking system, as was its global footprint given its multiple international subsidiaries. The 167-year-old bank’s balance sheet is around twice the dimensions of Lehman Brothers’ when it collapsed, at about 530 billion Swiss francs at the tip of last yr.
The combined bank will likely be a large lender, with greater than $5 trillion in total invested assets and “sustainable value opportunities,” UBS said in a release late Sunday.
The bank’s chairman, Colm Kelleher, said the acquisition was “attractive” for UBS shareholders but clarified that “so far as Credit Suisse is anxious, that is an emergency rescue.”
“We’ve structured a transaction which can preserve the worth left within the business while limiting our downside exposure,” he added in a press release. “Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses.”
Neil Shearing, group chief economist at Capital Economics, said a whole takeover of Credit Suisse can have been the very best solution to end doubts about its viability as a business, however the “devil will likely be in the small print” of the UBS buyout agreement.
“One issue is that the reported price of $3,25bn (CHF0.5 per share) equates to ~4% of book value, and about 10% of Credit Suisse’s market value initially of the yr,” he highlighted in a note Monday.
“This means that a considerable a part of Credit Suisse’s $570bn assets could also be either impaired or perceived as being liable to becoming impaired. This might set in train renewed jitters in regards to the health of banks.”
