Financial stock markets are down more than 3%, markets are in full swing and one of Europe’s biggest banks is in trouble following the SVB bankruptcy in the US on March 10th. Credit Suisse, the second Swiss bank, was acquired by its competitor UBS this Sunday, March 19, two interested organizations and the government confirmed. The latter is betting on this merger in order to “restore confidence”.
Under pressure from the authorities, which have held several rush meetings in recent days, UBS has agreed to pay more than three billion euros for the acquisition of Credit Suisse. According to the Financial Times, it would increase the first offer to overcome the reluctance of its competitor and one of its major shareholders and, above all, to prevent panic in the markets on Monday. This amount is payable in UBS shares and values the Credit Suisse share at 76 cents, which remains well below Friday’s share price at CHF 1.86.
After a record drop at the close of trading on March 15, Credit Suisse was worth barely 7 billion Swiss francs (about the same amount of euros). A disaster for the bank, which, like UBS, is one of 30 institutions in the world considered too important to be allowed to fail. Faced with distrust from investors and partners, the Swiss Central Bank immediately provided a loan of 50 billion Swiss francs to breathe new life into Credit Suisse and calm the markets. But the respite was short-lived.
According to Bloomberg, another scenario was once considered: partial or complete nationalization of Credit Suisse. According to the specialized media, citing people familiar with the situation, this was the only possible option, except for the absorption of UBS. “The country is considering either a complete takeover of the bank or a significant stake if the UBS takeover fails due to the difficulty of closing the deal and the short timeframe,” they said, asking not to be named because “this is a personal matter.”
two black years
Credit Suisse has just gone through two years marked by several scandals, which, by its own admission, revealed “significant weaknesses” in its “internal controls” by management. The Federal Financial Markets Authority (Finma) accused him of “serious breach of his prudential obligations” in the bankruptcy of financial company Greensill in 2021, which marked the beginning of his failures. At the end of October 2022, Credit Suisse unveiled an extensive restructuring plan to cut 9,000 positions by 2025, or more than 17% of its workforce. The bank, which at the time employed 52,000 people, now plans to spin off investment banking from the rest of its operations to refocus on more stable areas, including asset management.
In contrast, UBS, which spent several years recovering from the 2008 financial crisis, is beginning to reap the rewards of its efforts. As regards the acquisition of Credit Suisse, government guarantees would be required to cover the costs of liquidating certain parts of the Zurich bank, as well as possible legal costs. UBS wants about $6 billion, Reuters news agency reported Saturday night, citing sources familiar with the talks. The advance amount is still subject to change. Discussions also touch on the issue of jobs: the merger between UBS and Credit Suisse could lead to the loss of about 10,000 jobs.
“French banks are reliable”
In France, the President of the French Banking Federation, Philippe Brassac, assured that the banking turmoil that gripped Credit Suisse, in particular in Europe, is unlikely to affect the banking sector. “There is no risk because there is no possible contagion mechanism between the events we are seeing and French banks,” the banker, managing director of Crédit Agricole, told France Inter. “French banks are very reliable thanks to regulation” and “there is no distribution mechanism as it might have been in the past.”
“French banks are reliable,” echoed French Economy Minister Bruno Le Maire. “Depositors have nothing to worry about with their deposits. In Europe, we have the most demanding banking supervision system on the planet,” he told Le Parisien on Saturday.