The UBS-Credit Suisse deal, which was orchestrated by Swiss regulators to stave off further turmoil in the global banking system, has landed another Swiss bank in trouble, UBS itself. The shares of UBS on Monday saw a decline of up to 14 per cent in the early trade after it announced that it would buy its troubled rival Credit Suisse for about $3.25 billion.
UBS shares were down 14 per cent in early trading on the Swiss stock exchange, while Credit Suisse fell up to 63 per cent.
Credit Suisse, which is Switzerland’s second-biggest bank, is battling to recover from a string of scandals that have undermined the confidence of investors and clients. Its shares on Monday also crashed over 60 per cent.
Last week, in order to manage the current crisis, Credit Suisse Group AG said it will borrow up to $54 billion from the Swiss National Bank, to strengthen its liquidity. However, the plan failed reassure investors and the bank’s customers. The Swiss authorities then urged UBS to take over its smaller rival.
Credit Suisse is among 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.
Switzerland’s second-biggest bank is battling to recover from a string of scandals that have undermined the confidence of investors and clients.
Credit Suisse Chairman Axel Lehmann called the sale a clear turning point. It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets, Lehmann said, adding that the focus is now on the future and in particular on the 50,000 Credit Suisse employees, 17,000 of whom are in Switzerland.
Following news of the Swiss deal, the world’s central banks announced coordinated financial moves to stabilise banks in the coming week. This includes daily access to a lending facility for banks looking to borrow US dollars if they need them, a practice which widely used during the 2008 financial crisis. Three months after Lehman Brothers collapsed in September of 2008, such swap lines had been tapped for USD 580 billion. Added swap lines were also rolled out during market turmoil in the early stages of the COVID-19 pandemic in March of 2020.
The deal was “one of great breadth for the stability of international finance,” Swiss President Alain Berset said as he announced it Sunday night. “An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”
Two banks in the US, Silicon Valley Bank and Signature Bank, have collapsed. While, Swiss lender Credit Suisse and US-based First Republic Bank are also struggling and securing support to survive.
In the aftermath of the American banking crisis, the gold market soared to a lifetime high. Bullion was purchased as a safe haven after the sudden fallout of the SVC bank and other banks. The US bond rates saw unprecedented weakness, the dollar index fell, and gold prices increased. In view of the banking crisis and conflicting US economic statistics, the US Federal Reserve is expected to convene this week on March 22. The policy outcomes may provide further guidance for the bullion markets.
(With Inputs From Agencies)
Read all the Latest Business News here
Comments
0 comment