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Credit Suisse, UBS shares sink after last minute takeover

, March 21, 2023, 0 Comments

credit-suisse-swiss-no-one-business-talent-marketexpress-inGlobal stock markets plunged as they opened to the news of the shotgun buyout of Credit Suisse by rival UBS. Swiss authorities had hoped the takeover will calm investors.

Stock markets remained jittery on Monday as they opened following the announcement of the takeover of embattled Swiss lender Credit Suisse on Sunday by UBS and Swiss National Bank.

The buyout for 3 billion Swiss francs ($3.23 billion, €3.03 billion) was agreed after weekend talks that ran into Sunday evening, finalizing just ahead of financial markets’ Monday openings in New Zealand, Australia and eastern Asia.

The rescue of Credit Suisse has shaken Switzerland, a country that has built its reputation around being a safe banking and financial hub.

Shares in the embattled lending giant were down over 60% in Zurich on Monday morning, dipping below the price paid by UBS, whose own share price fell by over 8%.

Fears of an economic downturn sent the price of oil tumbling while gold — seen as a relatively safe investment — saw its price top $2,000 for the first time in over a year.

Share prices down in Monday trading

The Europe-wide banking index was down 3.2% on Monday, its lowest level in three months, although European stock markets began to settle after the initial slump.

The UK, Germany and France were also hit, with the main indexes in London, Frankfurt and Paris all down around 1%. German major banks Deutsche Bank and Commerzbank, as well as France’s BNP Paribas, were all down by at least 3%.

Meanwhile, Asian equities fell on Monday despite the news of the UBS takeover of Credit Suisse and hot on the heels of a sell-off in New York amid fears of a financial sector collapse.

Tokyo shares were down after Monday’s trading, with the benchmark Nikkei 225 index falling 1.42%, or 388.12 points, while Hong Kong’s main index fell 2.65% by the end of the day.

As part of the deal, Swiss authorities directed the write-off of high-risk bonds worth a total of 16 billion Swiss francs. The so-called addition tier 1 (AT1) bonds were created after the 2008 financial crisis to put losses from high-risk investments on the investors rather than taxpayers.

Germany’s largest bank Deutsche Bank responded to the news saying that its exposure to AT1 bonds was “near zero.”

German banking ‘stable and robust’

Germany’s financial regulator BaFin said it was “following current market developments” in the wake of the turmoil in Zurich, adding that “the German financial system continues to be stable and robust.”

France’s central bank head Francois Villeroy de Galhau said on Monday, in an interview for France Inter radio, that Credit Suisse’s woes and the volatility in the US banking system “don’t concern French and European banks.”

Villeroy, who is also a member of the European Central Bank (ECB), praised UBS for the takeover, saying: “They have diversified business models, which are profitable. They have strong risk controls and, above all, they have very important levels of liquidity and capital.”

French Economy Minister Bruno Le Maire also praised the buyout as a “good deal.”

“At the same time… it’s a heavyweight in Europe, so we will remain extremely vigilant about the reaction of the markets,” he added.

However, the leader of Switzerland’s Social Democrats, Roger Nordmann, told Reuters news agency on Monday that the UBS buyout had created a big risk for Switzerland.

“The new UBS is also another massive risk — it’s going to have more than 1,500 billion francs in assets, and it’s simply too big for Switzerland,” the lawmaker from the country’s second-biggest party said.