UBS has agreed to buy its rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) in a bid to save the troubled bank from financial collapse. This move comes as Swiss regulators and governments try to prevent a contagion that could harm the global banking system.
Credit Suisse had been struggling with losses and scandals for some time, and things got even worse in the past two weeks as other banks collapsed in the US. This created a ripple effect that threatened to engulf Credit Suisse and other banks around the world. In a bid to avoid a systemic crisis, UBS swooped in and offered to buy the troubled bank.
The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold. The combined bank will have $5 trillion of invested assets, making it one of the largest banks in the world.
But what led to Credit Suisse’s downfall? The bank had lost around 38% of its deposits in the last quarter of 2022, and its outflows have yet to reverse. It reported a net loss of 7.3 billion Swiss francs for 2022 and expects a further substantial loss in 2023. Credit Suisse’s balance sheet is around twice the size of Lehman Brothers when it collapsed in 2008, at around 530 billion Swiss francs as of the end of 2022. This makes it a potential threat to the global economy, and the Swiss regulators and governments had to find a way to bring the country’s two largest financial institutions together to prevent a catastrophe.
While the UBS deal is a positive development for Credit Suisse, it also means that there could be significant job cuts as UBS takes over the acquired assets. Nevertheless, this deal is essential to the financial structure of Switzerland and global finance. The US regulators have welcomed this deal, as the capital and liquidity positions of the US banking system are strong, and the US financial system is resilient.
In conclusion, the UBS deal to rescue Credit Suisse is a significant development in the global banking industry, and it highlights the importance of financial stability and how quickly things can change in the world of economics. It also shows how governments and regulators have a crucial role in preventing a financial contagion that could harm the global economy.
THINK LIKE AN ECONOMIST!
Q1. Define the term “financial stability” and explain why it is important for the Swiss economy.
Q2. Explain how the takeover of Credit Suisse by UBS could affect the job market in the banking industry.
Q3. Analyse the impact of the UBS acquisition of Credit Suisse on the Swiss economy and the global banking system.
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