Credit Suisse's recent failure can be attributed to losing the trust of its investors. In 2022, they reported its worst loss since the global financial crisis. Shares in Credit Suisse fell 25% in one week and investors tried to withdraw up to $10 billion a day. In an effort to prevent this failure, the Swiss National Bank provided an emergency loan of $54 Billion, but this was not sufficient to save Credit Suisse. Nevertheless, this loan played a pivotal role in UBS acquiring it for $3.2 Billion in a historic deal.
UBS and Credit Suisse are direct rivals in the banking industry and the deal has been designed to bring maximum stability to the Swiss banking system.
In addition to stabilising the Swiss banking system, UBS personnel are confident that they will benefit from this deal. CEO Ralph Hamers told the Financial Times that the deal was “not simply about bringing two companies together” but rather “how we can build a bigger UBS?”. However, UBS is taking on significant risk due to the sheer losses that Credit Suisse has built up over the past years through this deal. In 2022 Credit Suisse reported a loss of $8 Billion. Reports claim that Credit Suisse’s shareholders will be significantly wiped out, receiving 0.76 Swiss Francs per share.
From our perspective this is yet another effort to protect the global banking system, which has been also exemplified by HSBC’s recent acquisition of Silicon Valley Bank. Furthermore, it can allow UBS to benefit from the cost synergies of acquiring its closest rival, but the risk that UBS has taken on remains high and must be managed with caution.
Written by: Francesco D'Andrea
Sources: Financial Times, Reuters and Bloomberg
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