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Credit Suisse, UBS Shares Plunge 03/20 06:14
Shares of Credit Suisse plunged 60.5% in early trading Monday after the
announcement that banking giant UBS would buy its troubled rival for almost
$3.25 billion in a deal orchestrated by regulators to stave off further
market-shaking turmoil in the global banking system.
GENEVA (AP) -- Shares of Credit Suisse plunged 60.5% in early trading Monday
after the announcement that banking giant UBS would buy its troubled rival for
almost $3.25 billion in a deal orchestrated by regulators to stave off further
market-shaking turmoil in the global banking system.
UBS shares also were down 8% on the Swiss stock exchange.
Swiss authorities urged UBS to take over its smaller rival after a plan for
Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to
reassure investors and the bank's customers. Shares of Credit Suisse and other
banks plunged last week after the failure of two banks in the U.S. raised
questions about other potentially weak global financial institutions.
Markets remained jittery Monday despite the best efforts of regulators to
restore calm. In the U.S., the Federal Deposit Insurance Corp. announced late
Sunday that New York Community Bank has agreed to buy a significant chunk of
the failed Signature Bank in a $2.7 billion deal.
Global stock markets sank, with Hong Kong's main index sliding more than 3%.
Market benchmarks in Frankfurt and Paris opened down more than 1%, with
European banking stocks dropping more than 2%. Shanghai, Tokyo and Sydney also
declined. Wall Street futures were off 1%.
Credit Suisse is among 30 financial institutions known as globally
systemically important banks, and authorities were worried about the fallout if
it were to fail.
"An uncontrolled collapse of Credit Suisse would lead to incalculable
consequences for the country and the international financial system," Swiss
President Alain Berset said as he announced the deal Sunday night.
UBS is bigger but Credit Suisse wields considerable influence, with $1.4
trillion assets under management. It has significant trading desks around the
world, caters to the rich through its wealth management business, and is a
major mergers and acquisitions advisor. The bank did weather the 2008 financial
crisis without assistance, unlike UBS.
Many of its current problems are unique and unlike the weaknesses that
brought down Silicon Valley Bank and Signature Bank in the U.S. It has faced an
array of troubles in recent years, including bad bets on hedge funds, repeated
shake-ups of its top management and a spying scandal involving UBS.
Those troubles resurfaced last week after it reported managers had
identified "material weaknesses" in its internal controls on financial
reporting. Shares plunged Wednesday after its largest investor, the Saudi
National Bank, said it wouldn't invest any more money in the bank to avoid
triggering regulations that would kick in if its stake rose about 10%.
Switzerland's executive branch passed an emergency ordinance allowing the
merger to go through without shareholder approval.
As part of the deal, approximately 16 billion francs ($17.3 billion) in
Credit Suisse bonds will be wiped out. That has triggered concern about the
market for those bonds and for other banks that hold them.
The combination of the two biggest and best-known Swiss banks, each with
storied histories dating to the mid-19th century, amounts to a thunderclap for
Switzerland's reputation as a global financial center -- putting it on the cusp
of having a single national banking champion.
The deal follows the collapse of two large U.S. banks last week that spurred
a frantic, broad response from the U.S. government to prevent further panic.
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 what's next for Credit Suisse's 50,000
employees -- 17,000 of whom are in Switzerland.
Also Sunday, the world's central banks announced coordinated moves to
stabilize banks, including access to a lending facility for banks to borrow
U.S. dollars if they need them, a practice widely used during the 2008 crisis.
"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.
Swiss Finance Minister Karin Keller-Sutter said the Federal Council, the
country's executive branch, "regrets that the bank, which was once a model
institution in Switzerland and part of our strong location, was able to get
into this situation at all."
European Central Bank President Christine Lagarde lauded the "swift action"
by Swiss officials, saying they were "instrumental for restoring orderly market
conditions and ensuring financial stability."
She reiterated that the European banking sector is resilient, with strong
financial reserves and plenty of ready cash. The Credit Suisse parent bank is
not part of European Union supervision, but it has entities in several European
countries that are.
Last week, when the ECB raised interest rates, she said banks "are in a
completely different position from 2008" during the financial crisis, partly
because of stricter government regulation.
The Swiss government is providing more than 100 billion francs to support
the takeover.
Berset said the Federal Council had been discussing Credit Suisse's troubles
since early this year and held urgent meetings last week.
Investors and banking industry analysts were still digesting the deal, but
at least one analyst suggested it might tarnish Switzerland's global banking
image.
"A country-wide reputation with prudent financial management, sound
regulatory oversight, and, frankly, for being somewhat dour and boring
regarding investments, has been wiped away," Octavio Marenzi, CEO of consulting
firm Opimas LLC, said in an email.
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