UBS has completed a takeover of rival Swiss Credit Suisse in a £2.5bn deal – the bank’s market capitalisation was £6.6bn as recently as March 17 – as the major bank teetered on the edge in a weekend of high tension for global markets.
Swiss authorities prepared emergency measures for the takeover by allowing it to proceed without the usual six-week consultation period with shareholders, meaning a rescue deal could be in place by Sunday.
The Swiss National Bank said the deal was the best way to restore the confidence of financial markets and to manage risks to the economy. According to reports, the Swiss National Bank has also committed to providing over $100 billion in liquidity to UBS, according to a report from Bloomberg.
UBS chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.”
Market Reaction
Despite a deal being struck to allay fears and calm markets, European bank shares are still proving volatile in the aftermath as investors remain concerned about wider problems in the industry.
Major falls were seen in early trading in Germany’s Deutsche Bank and France’s BNP Paribas, although shares in both have since recovered some losses.
In the UK, shares in Standard Chartered, HSBC and Barclays also dipped in the aftermath.
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Despite the rescue package, this latest blow to the banking sector has illuminated wider problems in the industry, with investors questioning stability leading to market uncertainty.
The sharp rise in borrowing costs over the past year has created a backdrop of global economic change that has seen central banks around the world raise interest rates in a bid to ease inflation.
This rise in rates has subsequently hit the value of what has historically been deemed as safe investments for banks. This drop in value has made investors uneasy, which in turn is affecting bank share prices – to catastropic effect for some, as we’ve seen.
Specifically, two mid-sized US banks focussed on the tech sector – Silicon Valley Bank and Signature Bank – collapsed earlier this month, with Switzerland’s second biggest lender, Credit Suisse, being the latest victim with the deal for its rival UBS to buy it being pushed by Swiss regulators in a bid to restore confidence.
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