One of the world’s biggest banks will be getting even bigger. The Associated Pressreported, “Banking giant UBS is buying troubled rival Credit Suisse for almost $3.25 billion, in a deal orchestrated by regulators in an effort to avoid further market-shaking turmoil in the global banking system.”
The announcement comes amid mounting concerns over the potential collapse of Credit Suisse creating a contagion in the banking sector. Credit Suisse saw its stock price plunge and deposit outflows continue last week despite receiving a $54 billion financial lifeline from the Swiss National Bank to bolster its liquidity, Fox Business explained.
Regulators faced a sense of urgency to push the deal through on Sunday before markets opened Monday as the specter of Credit Suisse potentially failing next week loomed over the negotiations. Credit Suisse, which has been in business for 167 years, is one of 30 globally systemically important banks, which heightened worries about how global financial markets would react to its implosion.
Some terms of the agreement are yet to be announced publicly, although the Swiss National Bank announced that it will provide liquidity to support the UBS takeover of Credit Suisse. Both banks have access to existing lending facilities and may obtain an additional loan of up to 100 billion francs (or about $108 billion), while Credit Suisse can also tap a second liquidity assistance loan of that size that’s backstopped by the Swiss federal government.
“The substantial provision of liquidity will ensure that both banks have access to the necessary liquidity,” the Swiss National Bank announced in a release. “By providing substantial liquidity assistance, the SNB is fulfilling its mandate to contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end.”
The latest crisis at the Swiss bank was not the only problem the bank has recently experienced. “The Credit Suisse crisis boiled over last week, when the bank announced “material weaknesses” in its financial reporting. But the bank’s troubles started long before that, with a series of financial and political scandals that hit the bank’s reputation and bottom line. In the last two years alone, the bank’s stock has fallen by more than 80 percent,” wrote NPR.
“Credit Suisse was created 166 years ago to help finance Switzerland’s rail network. It became an international name in the banking sector and one of the most significant banks in the world.
But the bank’s reputation has taken several huge hits in recent years, including being linked to a money laundering operation involving a cocaine trafficking ring in Bulgaria, and hiring detectives to spy on an executive who left to work at a rival bank.”