UBS’s emergency takeover of its troubled Swiss rival Credit Suisse, accompanied by significant backing and arm-tweezing from Bern, on Monday raised fears it could undermine the country’s biggest bank and the financial sector as a whole.
Switzerland was in shock after its biggest bank agreed to swallow its second largest for $3.25 billion under pressure from Swiss authorities, with the government insisting it was in a bid to prevent the economic turmoil from spreading across the country and beyond. It was an important step.
Swiss media and politicians alike expressed outrage that one of the country’s oldest and most prestigious banking institutions had deteriorated, and insisted that it could have been saved, despite numerous crises and scandals.
Swiss authorities have faced criticism for reacting too slowly as Credit Suisse – seen as the weakest link in European banking after years of incredible scandals and crises – hit the market over the collapse of two US banks. Its share price has seen a decline in the last week amid the unrest.
‘Historic scam’
Balthasar Glutli, head of the Green party, which wants new rules to regulate banks such as Credit Suisse and UBS that are considered too big to fail, warned on Monday that the new UBS would be “a monster that will be bailed out”. Too big for”.
Thierry Burkart, head of Switzerland’s right-wing liberal party, meanwhile described Sunday as “a dark day for the Swiss financial sector and for Switzerland as a whole”.
Both his parties called an emergency parliament meeting on Monday to discuss the deal, including billions in guarantees and liquidity guaranteed by the government and the central bank.
Parliament told AFP it was considering holding such a hearing in mid-April.
The Tages-Anzeiger daily called the deal “a historic scandal”, while the Tribune de Genève said it was “useless, socially (for jobs), economically (for the country’s prestige), and politically”. Shame on the politicians who were too slow to act”.
Although many admitted that there was little choice. The government had said that the only alternative to the UBS deal was a complete nationalization of Credit Suisse.
Swiss President Alain Berset told reporters on Sunday that “the deal was the best solution to restore the confidence that has been lacking in the financial markets recently”.
But investors remained on edge, with UBS shares plunging 15 percent early Monday before climbing into positive territory in the afternoon. They closed up 1.3 percent at 17.33 Swiss francs per share.
Meanwhile, Credit Suisse shares opened down nearly 64 per cent on Monday morning, followed by paring some losses. The stock closed down 55.7 percent at 0.82 francs per share – slightly more than the UBS purchase price.
‘Demon’
While UBS, which is expected to post $7 billion in net profit in 2022, appears to be entering this forced marriage in full health, observers warn that the mega-merger is not without risks for the institution and beyond.
“The deal could draw a permanent line under the problems of the Swiss banking sector,” Andrew Cunningham, analyst at Capital Economics, said in a note.
But he cautioned that “the track record of shotgun marriages in the banking sector is mixed” and that “more damage at the legacy bank cannot be ruled out”.
Vontobel analyst Andreas Venditti also warned of “numerous uncertainties and significant risks”.
S&P Global Ratings revised its A-/A-2 rating outlook for UBS Group AG to negative, warning of “execution risks from integration”, while adding that the bank had “effectively managing emerging risks”. There is enough buffer” to limit properly.
The merger could have serious consequences among other things for jobs in Switzerland, where the businesses of UBS and Credit Suisse have significant overlap, and each with its own branch offices in a Swiss town and village.
Credit Suisse employs approximately 50,000 people worldwide and 17,000 in Switzerland.
Commentators also warned about the implications of allowing UBS, which is already a giant, to grow further.
UBS was already a global wealth management leader, but the deal will see it manage some $3.4 trillion in assets.
The deal would create “such a big super bank that it could put the whole country in trouble,” Marcel Fratzscher, head of the DIW think tank in Berlin, warned in an interview with Die Welt.
A commentary piece in Neue Zürcher Zeitung also raised the alarm over the size of the merged bank.
“A zombie is disappearing, but a monster is in the process of being born.”
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)