In a historic deal, Swiss authorities persuaded UBS Group AG to buy rival Credit Suisse Group AG in order to stop a banking crisis from spreading.
How Did This Happen?
To achieve this some of the world’s largest central banks came together on Sunday.
As part of this deal, UBS will pay 3 billion Swiss francs ($3.23 billion) for 167-year-old Credit Suisse.
It will assume up to $5.4 billion in losses in a deal backed by a massive Swiss guarantee and expected to close by the end of 2023.
After this announcement late on Sunday, the U.S. Federal Reserve, European Central Bank and other major central banks came out with statements to reassure markets that have been walloped by a banking crisis that started with the collapse of two regional U.S. banks earlier this month.
The move has affected S&P 500 and Nasdaq futures which were each up 0.4%, both giving back some earlier gains.
At the same time, New Zealand dipped at the open and Australian shares opened with a 0.5% loss.
Similarly, the safe-haven dollar lost ground against Sterling and the euro but was up versus the yen.
A Historic Day in Switzerland
It appears that the pressure on UBS helped seal Sunday’s deal.
The UBS Chair Colm Kelleher told analysts that “It’s a historic day in Switzerland, and a day frankly, we hoped, would not come,” during a conference call.
Further adding, “I would like to make it clear that while we did not initiate discussions, we believe that this transaction is financially attractive for UBS shareholders,”.
Although, there were still many details to be worked through, said UBS CEO Ralph Hamers.
Adding, “I know that there must still be questions that we have not been able to answer and I understand that and I even want to apologize for it.”
The Fed said it had joined with central banks in Canada, England, Japan, the EU and Switzerland in a coordinated action to enhance market liquidity, in a global response not seen since the height of the pandemic.
In order to restore the peace and calm, the ECB vowed to support euro zone banks with loans if needed, adding the Swiss rescue of Credit Suisse was “instrumental”.
In the meantime, Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen welcomed the announcement by the Swiss authorities.
The former chairman and CEO of Goldman Sachs Group Inc, Lloyd Blankfein said, “The greater risk environment for financials leads to husbanding of capital and risk-taking, less and more conservative investing and lending, and inevitably, lower growth.”
