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Friday, March 31, 2023

Credit Suisse rescued after a turbulent week

Switzerland’s largest bank, UBS, is buying its competitor Credit Suisse for $3.2 billion through a takeover deal aimed at protecting the Swiss economy, following the collapse of US Silicon Valley Bank (SVB) and Signature Bank panicked.

“With the takeover of Credit Suisse by UBS, a solution was found to ensure financial stability and to protect the Swiss economy in this exceptional situation,” the Swiss National Bank said in a statement on its website on Sunday. The takeover of Credit Suisse was supported by the federal government, the Swiss Financial Market Supervisory Authority FINMA and the Swiss National Bank.

The acquisition comes amid recent instability in global banking and fears over weak banks at a time when rising interest rates have hurt the value of some financial assets, according to CNN.

Credit Suisse said earlier last week that it would borrow nearly $54 billion from Switzerland’s central bank to counter financial markets’ fears that it could collapse like SVB and Signature Bank.

Swiss regulator FINMA and the Swiss National Bank offered financial support last week after a day of panic trading. As of Thursday, Credit Suisse said in a statement on its website that it would accept the central bank’s offer by borrowing 50 billion Swiss francs, or about $53.7 billion.

The move came after the bank’s shares plunged as much as 31 percent on Wednesday, prompting investors to panic that it would collapse under the weight of losses from a rapid rise in US interest rates. Share prices fell after officials at the Saudi National Bank, which owns around 10 percent of the bank’s shares, said it would not buy any more shares in a bid to bail out the financial institution.

Global regulators have long considered Credit Suisse systemically important and too big to fail. Meanwhile, the Swiss investment bank had $574 billion in assets at the end of 2022 and around $1.7 trillion in its wealth management business.

However, a history of financial scandals and market turmoil brought on by the Federal Reserve’s aggressive campaign to raise interest rates to stave off inflation weakened the bank.

The Swiss National Bank said in its statement that based on the Federal Council’s emergency decree, Credit Suisse and UBS can issue a liquidity support loan of up to CHF 100 billion ($107.8 billion) with privileged creditor status in bankruptcy.

According to the Associated Press, Swiss President Alain Berset said on Sunday that the takeover was “of great importance for the stability of international finances. An uncontrolled collapse of Credit Suisse would have unforeseeable consequences for the country and the international financial system. “

It is also regrettable that the bank, “which was once a flagship institution in Switzerland and part of our strong location”, got into this situation, said Finance Minister Karin Keller-Sutter.

news week emailed the Swiss National Bank for comment.

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