After years of false starts and missteps, UBS Group has emerged as the single global bank of the country, swallowing up its rival, Credit Suisse. The merger of the two banking giants casts a shadow over the Swiss economy, which is now dependent on one big lender.
It also ends the long-standing rivalry between two of the country’s most iconic banks.
Swiss Government Intervenes To Secure Financial Markets With $173 Billion
On Sunday night in Zurich, an unprecedented measure was revealed to prevent a collapse in the global financial markets. The Swiss government provided over 160 billion francs ($173 billion) in loans and guarantees to secure the new organization against potential dangers.
This groundbreaking intervention, the first since the 2008 financial crisis, gives UBS immense control, removing its principal competitor. This will alter the banking landscape in Switzerland, where Credit Suisse and UBS outlets often sit near each other.
The two lending institutions have been cornerstones of the international financial system for a long time. They are two of the most important banks in the global economy, holding assets up to 140% of the Swiss gross domestic product – a country heavily reliant on finance for economic development.
Since the 2008 financial crash, politicians have committed not to provide any more bank bailouts. However, the Credit Suisse rescue, made possible by government funds, demonstrates the fragility of these banks and how quickly their troubles can have consequences on their source nation.
Johann Scholtz, a popular equity analyst covering European Banks in Amsterdam, stated that usually, it would be an outstanding offer for UBS. Yet, in the current unpredictable climate, the situation is more complex.
Central Banks Unite To Restore Market Confidence Amid Credit Suisse Plunge
Meanwhile, the Federal Reserve, the European Central Bank, and the Bank of Japan have announced increasing dollar swap lines. They hope the move would soothe investors’ worries after the downfall of two U.S. banks and Credit Suisse’s shares decline.
UBS has agreed to pay $3.2 billion for the 167-year-old Credit Suisse and will have to take on at least $5.4 billion in losses resulting from the dissolution of risky assets and derivatives. Credit Suisse’s market value had dropped to around $8 billion at the end of Friday.
Credit Suisse bondholders will have their investments wiped out. At the same time, UBS holders will see at least some return through acquiring UBS shares.
This represents a remarkable change of fortune, considering UBS needed state support during the 2008 financial crisis while Credit Suisse was largely unscathed. Credit Suisse’s share price dropped by 74% last year, while that of UBS has remained relatively steady.
The disparity between the financial performances of UBS and Credit Suisse in the past year has been striking. UBS reported gains of $7.6 billion in 2022, while Credit Suisse reported a loss of $7.9 billion.
This has solidified UBS’s position as the preeminent manager of wealth globally due to its dominance in China. It is a contrast to Credit Suisse, which has a presence in the rest of Asia, the world’s most rapidly developing region.
However, the collapse of Credit Suisse was a significant setback to Switzerland’s long-standing reputation as a banking center, sending reverberations throughout the financial world.
