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Markets across the globe are suffering from investor panic as the collapse of Silicon Valley Bank and the massive issues at Credit Suisse. However, what appears to be a relief for investors, Swiss bank UBS is set to acquire the troubled bank.
What happened?
Troubles started when the US-based Silicon Valley Bank collapsed due to liquidity issues. Banking stocks all over the world began facing greater sell-offs, and Credit Suisse was not spared from it.
However, troubles began in earnest when its largest shareholder, Saudi National Bank, which holds 9.9% of the bank, spoke against further investment in the bank.
Also Read: Swiss regulators provide Credit Suisse with liquidity lifeline
Investors, who were already riled by the SVB collapse, reacted adversely to the news as the stocks of Credit Suisse fell over 30% in 4 sessions! The lack of confidence in the stock forced the Swiss National Bank to give the beleaguered Bank a $50+ billion credit facility.
So why is UBS acquiring Credit Suisse?
In a bid to avoid financial turmoil in the global banking system, UBS Group AG announced the acquisition of Credit Suisse for a sum of $3.25 billion after a weekend full of negotiations.
Moreover, the Swiss authorities pushed for UBS to acquire the Bank as the collapse of Credit Suisse would have led to a decline in the global faith in the banking system as Credit Suisse is one of the many systemically important banks globally.
The deal will be an all-share deal where each shareholder would get CHF 0.76, a 41% haircut. In the said deal, Credit Suisse bonds worth $17.3 billion will be wiped out, and aid of $108 billion will be provided to the merged entity by the Swiss Central Bank.
Moreover, the government is also offering a CHF 9 billion loss guarantee for this acquisition. The support provided to it has been cheered globally as US authorities are working with the Swiss authorities to help smooth the takeover.
The Swiss stock of Credit Suisse closed at CHF 1.86 on Friday, down 35.5% in 5 sessions. The company's ADR closed at $2.01 per share on Friday, down 6.94% in a day!
- Aman Agarwal
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