Swiss authorities urged UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs (£44billion) failed to reassure investors and the bank’s customers. Shares of Credit Suisse and other banks plunged after the failure of two banks in the US raised questions about other potentially shaky global financial institutions.
The move also prompted European experts and politicians to warn a similar outcome would have been impossible if Switzerland were part of the European Union, highlighting a failure of the eurozone banking system.
Eurointelligence director Wolfgang Munchau said: “There is no way the EU could do what the Swiss just did with UBS and Credit Suisse.
“As in: get a French bank to take over a failing German or Italian bank over a weekend. This is what happens when you have a banking union in name only.”
Echoing his concerns, Italian MEP Marco Zanni tweeted: “€100bn of liquidity from the Swiss central bank to support the acquisition of Credit Suisse by UBS.
“In a few days they invested €160bn of liquidity on the bank.
“We would have had a bail in and the MES with connected blows.”
Credit Suisse is among 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.
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.”
Switzerland’s executive branch, a seven-member governing body that includes Berset, passed an emergency ordinance allowing the merger to go through without shareholder approval.
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Markets remain jittery despite the best efforts of regulators to restore calm. Shares fell Monday in Asia, with Hong Kong’s Hang Seng index down 2.7 percent and Tokyo’s benchmark Nikkei 225 losing 1.2 percent.
Bank shares in the region were lower and futures in London and Frankfurt also fell.
Credit Suisse Chairman Axel Lehmann called the sale to UBS “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 on Credit Suisse’s 50,000 employees, 17,000 in Switzerland.
Following news of the Swiss deal, the world’s central banks announced coordinated moves to stabilise banks, including access to a lending facility for banks to borrow US dollars if they need them, a practice widely used during the 2008 crisis.
Three months after Lehman Brothers collapsed in September of 2008, such swap lines had been tapped for $580 billion. Swap lines also were rolled out during market turmoil in the early stages of the COVID-19 pandemic.
“Today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry,” said Max Georgiou, an analyst at Third Bridge. “These events could alter the course of not only European banking but also the wealth management industry more generally.”
Colm Kelleher, the UBS chairman, hailed “enormous opportunities” from the takeover and highlighted his bank’s “conservative risk culture” — a subtle swipe at Credit Suisse’s reputation for more swashbuckling gambles in search of bigger returns. He said the combined group would create a wealth manager with over $5 trillion in total invested assets.
UBS officials said they plan to sell off parts of Credit Suisse or reduce the bank’s size.