UBS has agreed to purchase Credit Suisse for 3 billion Swiss francs ($3.23 billion) and to take on up to $5.4 billion in losses. The merger was arranged by Swiss authorities to prevent further market disruption in global banking. However, despite initial investor relief, equity futures and Asian stocks struggled to stabilise on Monday. Credit Suisse informed staff that its wealth assets are currently operationally separate from UBS, but clients might consider moving some assets to another bank if concentration became a concern. The Swiss Bank Employees Association called on UBS to keep job cuts to an “absolute minimum,” stating that it was “deeply shocked” by the takeover. The deal also involves 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse from the Swiss central bank. The European Central Bank praised the Swiss rescue of Credit Suisse, calling it “instrumental” in restoring calm to financial markets, but also stated that it remains prepared to offer loans to eurozone banks if needed.
UBS Chairman Colm Kelleher expressed a desire to keep Credit Suisse’s Swiss unit, describing it as a “fine asset” that they are “very determined to keep.” However, market reaction was not positive, with Standard Chartered (OTC:SCBFF) Plc and HSBC shares each falling more than 6% in Hong Kong on Monday to more than two-month lows. The MSCI index for financial stocks in Asia ex-Japan was down 1.3%. Safe-haven currencies, such as the yen and U.S. dollar, recovered from early steep declines, and the risk-sensitive Australian and New Zealand dollars flipped to losses.
According to Max Georgiou, an analyst at Third Bridge in London, “Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry. These events could alter the course of not only European banking but also the wealth management industry more generally.” Octavio Marenzi, CEO of Opimas in Vienna, stated that “Switzerland’s standing as a financial centre is shattered,” adding that “The Credit Suisse debacle will have serious ramifications for other Swiss financial institutions. A country-wide reputation with prudent financial management, sound regulatory oversight, and, frankly, for being somewhat dour and boring regarding investments, has been wiped away.”
In related news, the U.S. Federal Deposit Insurance Corp (FDIC) is planning to relaunch the sale process for Silicon Valley Bank after failing to attract buyers in its latest auction, with the regulator seeking a potential break-up of the failed lender. Four prominent U.S. lawmakers on banking matters stated that they would consider whether a higher federal insurance limit on bank deposits was needed to stem a financial crisis marked by a drain of large, uninsured deposits away from smaller and regional banks. Senator Elizabeth Warren, a Democrat, praised the lifting of the FDIC insurance cap, referring to the Federal Deposit Insurance Corporation’s current $250,000 limit per depositor.