UBS buys out Credit Suisse for $ 3.2 b to calm markets, but Asian equities sink

Tuesday, 21 March 2023 02:07 - - {{hitsCtrl.values.hits}}

BERN, AFP: UBS is set to take over its troubled Swiss rival Credit Suisse for $ 3.25 billion following weekend crunch talks aimed at preventing a wider international banking crisis, but Asian equities sank Monday on lingering worries about the sector.

The deal, in which Switzerland’s biggest bank will take over the second largest, was vital to prevent economic turmoil from spreading throughout the country and beyond, the Swiss Government said.

The move was welcomed in Washington, Frankfurt and London as one that would support financial stability, after a week of turbulence following the collapse of two US banks.

After a dramatic day of talks at the Finance Ministry in Bern – and with the clock ticking towards the markets reopening on Monday – the takeover was announced at a press conference.

Swiss President Alain Berset was flanked by UBS Chairman Colm Kelleher and his Credit Suisse counterpart Axel Lehmann, along with the Swiss Finance Minister and the heads of the Swiss National Bank (SNB) and the Financial Regulator FINMA.

The wealthy Alpine nation is famed for its banking prominence and Berset said the takeover was the “best solution for restoring the confidence that has been lacking in the financial markets recently”.

If Credit Suisse went into free-fall, it would have had “incalculable consequences for the country and for international financial stability”, he said. Credit Suisse said in a statement that UBS would take it over for “a merger consideration of three billion Swiss francs ($ 3.25 billion)”.

After suffering heavy falls on the stock market last week, Credit Suisse’s share price closed Friday at 1.86 Swiss francs, with the bank worth just over $ 8.7 billion. UBS said Credit Suisse shareholders would get 0.76 Swiss francs per share. Asian equities still fell in early trade Monday, with Hong Kong, Tokyo, Sydney, Seoul and Singapore all in the red.

Hong Kong’s monetary authority sought to calm jitters Monday morning, saying that “exposures of the local banking sector to Credit Suisse are insignificant”, as the bank’s assets make up “less than 0.5%” of the city’s banking sector.

Despite that, the city’s banking stocks tumbled: HSBC dropped 6%, Standard Chartered shed 5% and Hang Seng Bank gave up nearly 2%, in line with a global sell-off in the sector on worries about lenders’ exposure to bonds linked to Credit Suisse.

Swiss Finance Minister Karin Keller-Sutter said that bankruptcy for Credit Suisse could have caused “huge collateral damage”. With the “risk of contagion” for other banks, including UBS itself, the takeover has “laid the foundation for greater stability both in Switzerland and internationally”, she said.

The deal was warmly received internationally. The decisions taken in Bern “are instrumental for restoring orderly market conditions and ensuring financial stability,” said European Central Bank Chief Christine Lagarde.

“The euro area banking sector is resilient, with strong capital and liquidity positions.” US Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: “We welcome the announcements by the Swiss authorities today to support financial stability.”