Banking giant UBS acquires smaller rival Credit Suisse to avoid market turmoil

GENEVA, Switzerland (AP) – Banking giant UBS is buying its smaller rival Credit Suisse in a bid to avoid further market-shaking turmoil in global banking, Swiss President Alain Berset announced Sunday night.

Berset, which did not specify a value of the agreement, called the announcement “one of great breadth for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”

The Swiss president said the council had agreed to guarantee a total of 150 billion francs of liquidity to the 167-year-old bank, well above the 50 billion (54 million Swiss francs) that had been made public. But that didn’t seem to be enough.

“We noted that the outflow of liquidity and the volatility of the markets showed that the necessary confidence could no longer be restored and a quick solution guaranteeing stability was essential.”

Swiss Finance Minister Karin Keller-Sutter said the council “regrets that the bank, which was once a model institution in Switzerland and part of our strong position, was even able to get into this situation.”

The combination of the two largest and best-known Swiss banks, each with a history dating back to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial center – leaving it on the brink of to have a single national champion in banking. Part of the problems Credit Suisse has faced in recent years involved a spying scandal that was ordered by its executives to snoop on a former colleague who moved to UBS.

Berset said the Federal Council – Switzerland’s executive – had already been discussing a long-troubled situation at Credit Suisse since the beginning of the year and held urgent meetings over the past four days amid growing concerns about its financial health that caused major swoon in its share price and raised the specter of the 2007-2008 financial crisis.

Credit Suisse has been designated by the Financial Stability Board, an international body that oversees the global financial system, as one of the world’s globally systemically important banks. That means regulators believe its unchecked failure will lead to ripples throughout the financial system, not unlike the collapse of Lehman Brothers 15 years ago.

Sunday’s news conference follows the collapse of two major US banks last week that spurred a frantic, broad-based response from the US government to prevent further banking panics. Still, global financial markets have been on edge since Credit Suisse’s share price began falling this week.

Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant bailout by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their decline does not necessarily signal the start of a financial crisis similar to what happened in 2008.

The deal caps a highly volatile week for Credit Suisse, particularly on Wednesday, when its shares fell to a record low after its biggest investor, Saudi National Bank, said it would not invest more money in the bank to avoid rules falls to pieces. would kick in if its share rose around 10%.

On Friday, shares fell 8% to close at 1.86 francs ($2) on the Swiss exchange. The stock has experienced a long decline: It traded at more than 80 francs in 2007.

Its current problems began after Credit Suisse reported on Tuesday that executives had identified “material weaknesses” in the bank’s internal controls over financial reporting at the end of last year. That raised fears that Credit Suisse would be the next domino to fall.

Although smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence with $1.4 trillion in assets under management. The firm has significant trading offices around the world, caters to the rich and affluent through its wealth management business and is a key advisor to global companies on mergers and acquisitions. Notably, Credit Suisse did not need government support in 2008 during the financial crisis, while UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a big half-percentage-point increase in interest rates to try to curb stubbornly high inflation, saying Europe’s banking sector is “resilient” with strong finances.

ECB President Christine Lagarde said banks “are in a completely different position than 2008” during the financial crisis, in part because of tighter government regulation.

The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome a series of problems, including bad bets at hedge funds, repeated shakeups of its top management and a spying scandal involving UBS.

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