UBS expects a successful acquisition of Credit Suisse
Shares in UBS rose as much as 10% on Tuesday, on course for their biggest gain since March 2020, as investor optimism over the takeover of the bank’s biggest rival grew.
The Swiss company led European bank stocks higher, as fears over the stability of the financial sector eased with news of UBS’s emergency takeover of Credit Suisse. UBS is poised to add nearly 6.6 billion Swiss francs (6.63 billion euros, $7.1 billion) to its market value since the landmark deal was announced on Sunday.
The government-brokered CHF3 billion bailout was intended to end a crisis of confidence in Credit Suisse and stem the contagion in the global financial system that began with the collapse of California-based Silicon Valley Bank (SVB).
However, there is also concern because of the size of what is now Switzerland’s only major bank, the “new UBS”.
“A zombie is gone, but a monster is rising” – that’s what the Swiss newspaper Neue Zürcher Zeitung (NZZ) wrote earlier this week about Credit Suisse’s emergency merger with its longtime rival.
“The risk is diminishing for now because the weak candidate is taken out of the market and massively backed by a stronger acquiring bank that is about twice as big,” said Martin Lück, German chief strategist at BlackRock, the country’s largest asset manager. world.
Lück told DW that additional guarantees from the Swiss state and central bank would strongly support the merger. “Of course, it also creates a monolith, an even bigger bank, which becomes even more ‘too big to fail’ and systematically important.”
The merger will create a new bank with total assets of nearly €1.58 trillion ($1.70 trillion) – twice the size of Switzerland’s gross domestic product. The bank is already active worldwide, both in wealth management and investment banking. The size of the takeover ended up forcing major central banks to provide ample liquidity to smaller commercial creditors to avoid a liquidity crunch in the global financial system.
unavoidable severe cuts
However, UBS management faces a daunting task. The board of directors is led by experienced investment banker Colm Kelleher, who spent 30 years at US investment bank Morgan Stanley, which he also directed during the financial crisis as chief financial officer between 2007 and 2009. Since 2020, operational management has been in the hands of Dutchman Ralph Hamers, formerly head of Dutch banking giant ING.
It has been speculated that up to a fifth of Credit Suisse’s 50,000 employees could lose their jobs as a result of the bank’s closure. “There is a huge overlap in business models,” said BlackRock’s Martin Lück, referring to the asset management and investment banking divisions. “That’s where it will take significant cuts to make this bank profitable.”
Until his appointment to head UBS in September 2020, Hamers worked for ING for nearly 30 years. After the financial crisis, he restructured UBS, transforming the lender into a modern, digitally innovative bank. His reputation was damaged by a money laundering scandal, which the bank resolved five years ago with a €775m settlement. But an investigation is still ongoing against him to find out why ING failed to tackle money laundering while Hamers was in charge.
Swiss banking regulator Finma now faces a daunting task. It has already received isolated criticism for its lack of oversight of Credit Suisse, whose problems had been known for months. Should the supervisory authority have looked into this and, above all, acted earlier? This is just one of the questions being asked in financial markets today.
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.