Banking giant UBS is buying troubled rival Credit Suisse for almost US$3.25 billion, in a deal orchestrated by regulators in an effort to avoid further market-shaking turmoil in the global banking system.
Swiss authorities pushed for UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs failed to reassure investors and the bank’s customers. Shares of Credit Suisse and other banks sold off this week after the failure of two banks in the U.S. sparked concerns about other potentially shaky institutions in the global financial system.
Colm Kelleher, the UBS chairman, hailed the “enormous opportunities” that emerge from the takeover, and highlighted his bank’s “conservative risk culture” — a subtle swipe at a Credit Suisse culture that’s known for more swashbuckling, aggressive gambles on bigger returns. He said the combined group would create a wealth manager with over US$5 trillion in total invested assets.
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.” A part of the deal, approximately 16 billion francs in Credit Suisse bonds will be wiped out. European bank regulators use a special type of bond designed to provide a capital cushion to banks in times of distress. But these bonds are designed to be wiped out if a bank’s capital falls below a certain level, which was triggered as part of this government-brokered deal.
Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world’s important banks. This means regulators believe its uncontrolled failure would lead to ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.
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