Switzerland holds press conference amid troubles at Credit Suisse

JAMEY KEATEN and KEN SWEET (Associated Press)

GENEVA (AP) — Banking giant UBS has sold troubled rival Credit Suisse for about 3.25 billion dollars in a regulatory-coordinated deal to avoid further disruption to the global banking system, which has rocked markets. bought for dollars.

Swiss officials say UBS will take over from smaller rivals after Credit Suisse’s plan to borrow up to 50 billion francs ($54 billion) failed to reassure investors and bank customers. asked for. Shares of banks such as Credit Suisse plunged this week following the collapse of two US banks.

Credit Suisse is one of 30 financial institutions globally known as systemically important banks. Officials are concerned about the consequences if it fails.

Swiss President Alain Berset announced on Sunday evening that the deal was “one of the broadest for international financial stability”. “The uncontrolled collapse of Credit Suisse would have devastating consequences for the country and the international financial system.”

The Swiss executive branch, a seven-member governing body that includes Berset, has passed an emergency ordinance that allows mergers to take place without shareholder approval.

Credit Suisse chairman Axel Lehmann called the sale a “clear turning point”.

“Today is a historic, sad and very difficult day for Credit Suisse, Switzerland and the global financial markets,” he said in Switzerland.

Following the news of the Swiss deal, central banks around the world announced coordinated monetary policy next week to stabilize banks. This includes daily access to lending facilities for banks looking to borrow US dollars on demand, a practice widely used during the 2008 financial crisis. Three months after Lehman Brothers collapsed in September 2008, such a swap line was tapped for his $580 billion. Additional swap lines were also deployed during market turmoil in the early stages of his COVID-19 pandemic in March 2020.

“Today is one of the most important days for European banking since 2008, with significant implications for the industry,” said Max Georgiou, an analyst at Third Bridge. It could change the course of the wealth management industry, not just European banks, but more generally.”

UBS chairman Colm Kelleher welcomed the “huge opportunity” that the acquisition would create and emphasized his bank’s “conservative risk culture”. This is a subtle attack on Credit Suisse’s reputation as a bolder, more aggressive gambler in search of greater returns. He said the combined group would create a wealth manager with total invested assets in excess of $5 trillion.

Swiss Finance Minister Karin Keller-Sutter said the council “regrets that a bank that was once a Swiss model institution and part of a strong Swiss location has fallen into this situation”. Stated.

The combination of two of the largest and most famous Swiss banks, each with a storied history dating back to the mid-19th century, is like a thunderclap to Switzerland’s reputation as a global financial center. Bank.

The deal follows the collapse of two major US banks last week and has spurred a desperate and widespread response from the US government to prevent further panic. Still, global financial markets have been strained since Credit Suisse shares began to plunge this week.

European Central Bank President Christine Lagarde praised the “prompt action” by the Swiss authorities, which she said “helped restore an orderly market environment and ensure financial stability”.

She said banks were “in a completely different position than they were in 2008” during the financial crisis, partly due to tighter government regulations.

A UBS official said it plans to sell part of Credit Suisse or downsize the bank in the coming months and years.

The Swiss government is offering more than CHF100 billion in aid and financial support to close the deal.

As part of the deal, around 16 billion francs ($17.3 billion) of Credit Suisse bonds will be wiped out. European banking regulators use a special class of bonds designed to provide a capital buffer in times of distress for banks. However, these bonds are designed to expire if the bank’s capital falls below a certain level, which was triggered as part of this government-brokered deal.

Bersett said the federal council had already discussed long-running issues at Credit Suisse since the beginning of the year and had held emergency meetings over the past four days.The specter of the 2007-08 financial crisis.

Investors and banking industry analysts were still digesting the deal, but at least one analyst was dismissive of the news as it could damage the image of Switzerland’s global bank. was.

Octavio Marenzi, CEO of consulting firm Opimas LLC, said in an email.

Credit Suisse has been designated as one of the world’s most important banks by the Financial Stability Board, the international body that oversees the global financial system. This means regulators believe its uncontrollable failure will have ripple effects throughout the financial system, similar to the Lehman Brothers failure 15 years ago.

Credit Suisse’s parent bank is not under European Union supervision, but has entities in several European Union countries. Lagarde reiterated what she said last week after central banks hiked rates — Europe’s banking sector is resilient, with strong fiscal reserves and plenty of cash.

Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, which led to massive rescue efforts by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their downfall does not necessarily mark the beginning of a financial crisis such as that which occurred in 2008.

The deal caps a very volatile week for Credit Suisse, most notably with the largest investor, the National Bank of Saudi Arabia, investing more money in the bank to avoid regulation. That’s when the company’s stock plummeted to record lows after it said it wouldn’t. It will start when the stake increases by about 10%.

Shares fell 8% to close at 1.86 francs ($2) on the SIX Swiss Exchange on Friday. The stock has been in a long decline, trading at over CHF80 in 2007.

The current troubles began after Credit Suisse reported on Tuesday.

Although smaller than Swiss rival UBS, Credit Suisse still wields considerable influence, managing $1.4 trillion in assets. The company has significant trading desks around the world, serves the rich and wealthy through its wealth management business, and is a leading advisor to global corporations in M&A. Notably, Credit Suisse did not need government assistance during the 2008 financial crisis, but UBS did.

A Swiss bank has decided to raise money from investors and develop a new strategy to overcome a series of problems, including bad bets on hedge funds, repeated turmoil at the top, and a spy scandal involving UBS. have promoted.

___

Contributors were Frank Jordans and Emily Schulteis, AP reporters from Berlin, Barbara Ortatey from Oakland, CA, Chris Rugerber from Washington, Ken Sweet from New York, and David McHugh from Frankfurt, Germany.