Permanent or Temporary Relief? UBS Agrees To Buy Crisis Hit Credit Suisse For $3.25 Billion
The global economy is in turmoil as a result of the global banking crisis caused by the failure of Silicon Valley Bank in the United States and Credit Suisse, Switzerland's second-largest 165-year-old bank.
These are the two major banks that triggered the crisis, but there are many other banking institutions around the world that are still under stress, such as the First Republic Bank of the United States. Apart from these two banks, there are several other small banks that failed in the United States and Europe. The Manhattan Based crypto bank, Signature bank also failed.
The global economy was already stressed as a result of the Covid pandemic, which nearly wiped out the global logistics network for a year. Following Covid, the war in Ukraine has resulted in an additional supply chain crisis, as well as other complications due to several sanctions on Russia and its ally, China.
The US is attempting to exert economic control over China, but one question must be asked of its allies: Are they prepared to contain China economically, and are they willing to sacrifice such a large market? Because the US cannot contain Chia's economic progress without allies.
In the midst of the Ukrainian conflict, US allies are turning to China. German Prime Minister Olaf Scholz recently visited China and signed an agreement to expand cooperation with China. Not only Germany, but other nations are also showing agreeable terms with China.
These are some of the factors that contributed to the global economic downturn. When a country's economy suffers, the banking infrastructure suffers first because banks are the backbone of any economy and are the first to bear the brunt of any attack on the economy, whether from inside or outside; in this case, the entire world has become infected with this poison.
Every day, investors lose money on baking shares. Since the failure of the Silicon Valley bank, investors have lost between $400 and $600 billion.
The failure of Silicon Valley Bank has had a ripple effect on the global economy, and as a result, Credit Suisse has been impacted. Credit Suisse's value has been declining since the leak of documents relating to money laundering through the bank, and the bank has been used by questionable individuals in engaging in promiscuous activities.
An anonymous source provided the data to the German newspaper Süddeutsche Zeitung, which shared it with OCCRP and 46 other media partners around the world. To corroborate their findings, reporters from five continents combed through thousands of bank records, interviewed insiders, regulators, and criminal prosecutors, and dug into court records and financial disclosures.
The data covers over 18,000 accounts held by several individuals from the 1940s to the last decade. The total value of those accounts is estimated to be around $100 billion.
As a result of the effect of the two swords, Credit Suisse's share price fell 31% on March 15 when its largest investor, the Saudi National Bank (SNB), ruled out providing any new funding due to the bank's regulatory cap.
Following a massive drop in its share price, Swiss regulators and Switzerland's national bank, Swiss National Bank, decided to lend $54 billion to regain investor confidence, but only for one day. The following day, its share began to fall again due to global economic uncertainty.
Why UBS decided to buy Credit Suisse for $3.2 billion?
Credit Suisse bank has suffered multibillion-dollar losses as a result of the failure of investment funds Archegos and Greensill Capital, which were major shareholders in the bank.
With no hope of the bank's recovery from this impending fall, Credit Suisse and UBS entered into a merger agreement on Sunday, following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority FINMA (FINMA).
The Credit Suisse takeover bid was the subject of several rumors. There was a rumor that BlackRock might take over the bank, but the news was eventually proven to be false from the outside. BlackRock is an investment firm that owns stock in every major company in the world; there is no guarantee that it will buy Credit Suisse's shares, and it has every right to do so, but for the time being, Switzerland's largest bank is buying the bank in order to save Europe and Switzerland's economies.
According to the terms of the merger agreement, each Credit Suisse shareholder will receive one share of UBS in exchange for 22.48 shares of Credit Suisse.
UBS will also lay off 9000 employees because the company already employs 74,022 people as the world's largest private bank. After taking over Credit Suisse, the organization will have a total workforce of 124,502 people, which is why it will have to reduce some of the workforce strength to maintain the austerity measures.
The Swiss Federal Department of Finance, the Swiss National Bank, and FINMA have asked Credit Suisse and UBS to enter into a merger agreement on March 19, 2023. The merger can be implemented without shareholder approval under the emergency ordinance issued by the Swiss Federal Council. The merger's completion is still subject to customary closing conditions.
The following key terms are included in the merger agreement:
1. All Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares they own. This exchange ratio reflects a CHF 3 billion merger consideration for all Credit Suisse shares.
2. The Swiss National Bank will provide Credit Suisse with access to facilities that will provide significant additional liquidity.
3. To ensure a smooth merger, UBS is expected to appoint key personnel to Credit Suisse as soon as legally possible.
4. Credit Suisse continues to operate normally and implements its restructuring measures in collaboration with UBS.
In the aftermath of the US Fed's interest rate hikes, regulators had already rung the distress bell for Credit Suisse and Silicon Valley Bank. Because the interest rate hike had multiple effects on the price of US bonds, it pushed bond markets to their nadir.
Some banks vigorously ignored this warning and displayed arrogance towards regulators. Now, those banks' shares have fallen precipitously, putting the global economy at risk.
The world is slowly returning to the scene of the 2008 meltdown, and financial market leaders are ringing the alarm bell once more, as they did in the case of banks.