Credit Suisse, UBS shares plunge after takeover announcement

Shares of Credit Suisse have plunged 60.5 percent after the announcement that banking giant UBS would buy its troubled rival for almost $3.25 billion in a deal orchestrated by regulators to stave off further market-shaking turmoil in the global banking system.

UBS shares also were down 8 percent on the Swiss stock exchange, in early trading on Monday. 

Swiss authorities urged UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to reassure investors and the bank’s customers. Shares of Credit Suisse and other banks plunged last week after the failure of two banks in the US raised questions about other potentially weak global financial institutions.

Markets remained jittery on Monday despite the best efforts of regulators to restore calm. In the US, the Federal Deposit Insurance Corp. announced late Sunday that New York Community Bank has agreed to buy a significant chunk of the failed Signature Bank in a $2.7 billion deal.

Global stock markets sank, with Hong Kong’s main index sliding more than 3 percent. Market benchmarks in Frankfurt and Paris opened down more than 1 percent, with European banking stocks dropping more than 2 percent. Shanghai, Tokyo and Sydney also declined. Wall Street futures were off 1 percent.

Credit Suisse is among 30 financial institutions known as globally systemically important banks, and authorities were worried about the fallout if it were to fail.

“An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system,” Swiss President Alain Berset said as he announced the deal Sunday night.

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'material weaknesses'

UBS is bigger but Credit Suisse wields considerable influence, with $1.4 trillion in assets under management. It has significant trading desks around the world, caters to the rich through its wealth management business, and is a major mergers and acquisitions advisor. The bank did weather the 2008 financial crisis without assistance, unlike UBS.

Many of its current problems are unique and unlike the weaknesses that brought down Silicon Valley Bank and Signature Bank in the US It has faced an array of troubles in recent years, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving UBS.

Those troubles resurfaced last week after it reported managers had identified “material weaknesses” in its internal controls on financial reporting. Shares plunged Wednesday after its largest investor, the Saudi National Bank, said it wouldn’t invest any more money in the bank to avoid triggering regulations that would kick in if its stake rose about 10 percent.

Switzerland's executive branch passed an emergency ordinance allowing the merger to go through without shareholder approval.

As part of the deal, approximately 16 billion francs ($17.3 billion) in Credit Suisse bonds will be wiped out. That has triggered concern about the market for those bonds and for other banks that hold them.

The combination of the two biggest and best-known Swiss banks, each with storied histories dating to the mid-19th century, amounts to a thunderclap for Switzerland’s reputation as a global financial centre – putting it on the cusp of having a single national banking champion.

The deal follows the collapse of two large US banks last week that spurred a frantic, broad response from the US government to prevent further panic.

Credit Suisse Chairman Axel Lehmann called the sale to UBS “a clear turning point.”

“It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets,” Lehmann said, adding that the focus is now on the future and on what's next for Credit Suisse’s 50,000 employees – 17,000 of whom are in Switzerland. 

READ MORE: UBS agrees to take over Credit Suisse for over $3B