GENEVA, Switzerland (AP) — Banking giant UBS is buying smaller rival Credit Suisse in a bid to avoid further market turmoil in the global banking sector, Swiss President Alain Berset said Sunday.
Berset, which did not specify the value of the transaction, defined the announcement as “of great importance for the stability of international finance. An uncontrolled collapse of Credit Suisse would have incalculable consequences for the country and the international financial system.”
The Swiss president said the board had agreed to guarantee a total of 150 billion francs of liquidity to the 167-year-old bank, well above the 50 billion (54 million Swiss francs) figure that had been publicly announced. But that didn’t seem to be enough.
“We observed that liquidity outflows and market volatility demonstrated that the necessary confidence could no longer be restored and a quick fix was essential to ensure stability.”
Swiss Finance Minister Karin Keller-Sutter said the board “regrets that the bank, which was once a model institution in Switzerland and part of our strong position, has managed to end up in this situation.”
The combination of Switzerland’s biggest and most famous banks, each with storied histories dating back to the mid-19th century, is a lightning rod for Switzerland’s reputation as a global financial center, leaving it on the brink of having just one national champion. in the banking sector. Part of Credit Suisse’s troubles in recent years involved a spying scandal ordered by its executives to track down a former colleague who had moved to UBS.
Berset said the Federal Council — Switzerland’s executive branch — had already been discussing a long-troubled situation at Credit Suisse since the beginning of the year and had held urgent meetings in the past four days amid growing concerns about financial health. swooned share prices and raised the specter of the 2007-2008 financial crisis.
Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world’s systemically important banks. That means regulators believe its flash bankruptcy will send ripples throughout the financial system, not unlike the collapse of Lehman Brothers 15 years ago.
Sunday’s press conference follows the collapse of two major US banks last week, which prompted a frantic and large-scale response by the US government to prevent further banking panics. However, global financial markets have been on the move since Credit Suisse’s share price began falling this week.
Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort by the Federal Deposit Insurance Corporation and the Federal Reserve. Consequently, their fall does not necessarily mark the beginning of a financial crisis similar to those that occurred in 2008.
The deal caps a highly volatile week for Credit Suisse, particularly on Wednesday, when its shares fell to an all-time low after its biggest investor, Saudi National Bank, said it would no longer put money into the bank to avoid triggering regulations. which would take effect if his stake increased by about 10%.
Shares fell 8 percent to 1.86 francs ($2) on Swiss exchanges on Friday. The stock suffered a long decline: in 2007 it traded at over 80 francs.
Its current problems began after Credit Suisse reported on Tuesday that executives had identified “significant deficiencies” in the bank’s internal controls over financial reporting since the end of last year. This has raised fears that Credit Suisse will be the next domino to fall.
Although smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion in assets under management. The firm has major trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a leading advisor to global M&A companies. Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.
Despite the banking turmoil, the European Central Bank on Thursday approved a sharp half-percentage point hike in interest rates to try to control high inflation, saying Europe’s banking sector was “resilient” with strong finances.
ECB President Christine Lagarde said banks were “in a completely different position than they were in 2008” during the financial crisis, partly because of tougher government regulations.
The Swiss bank has been rushing to raise money from investors and launch a new strategy to overcome a variety of problems, including bad hedge fund bets, repeated changes to its top management and a spying scandal involving UBS.
I’m a passionate and motivated journalist with a focus on world news. My experience spans across various media outlets, including Buna Times where I serve as an author. Over the years, I have become well-versed in researching and reporting on global topics, ranging from international politics to current events.