Asian shares continued to fall in early trading on Monday, with Hong Kong, Tokyo, Sydney, Seoul and Singapore all in the red
UBS bought it Credit Suisse instead of 3 billion Swiss francsafter crucial talks over the weekend in an attempt to rescue the struggling bank and to avert a wider international crisis, but Asian shares fell on Monday (20/3) on continued concerns about the sector.
The deal, which will see Switzerland’s biggest bank take over its second-biggest, was vital to prevent financial turmoil from spreading across the country and beyond, the Swiss government said.
The deal was hailed by Washington, Frankfurt and London as a move that would underpin financial stability, after a week of turmoil following the collapse of two US banks.
After a dramatic day of talks at the finance ministry in Bern – and with time running out for markets to reopen on Monday – the takeover was announced at a press conference.
Swiss president Alain Berchet was flanked by UBS chairman Colm Kellencher and Credit Suisse chairman Axel Lehmann, along with the Swiss finance minister and the heads of the Swiss National Bank (SNB) and financial regulator FINMA.
Berche said the acquisition was “the best solution to restore the confidence that has recently been lacking in the financial markets”.
If Credit Suisse was in freefall, it would have “incalculable consequences for the country and for international financial stability,” he added.
After suffering a big fall on the stock market last week, Credit Suisse’s share price closed Friday at 1.86 Swiss francs, valuing the bank at just over $8.7 billion. UBS said Credit Suisse shareholders will receive 0.76 Swiss francs per share.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Lehman said.
Asian markets fall
Asian shares were still lower in early trading on Mondaywith Hong Kong, Tokyo, Sydney, Seoul and Singapore in the red.
Hong Kong’s monetary authority sought to calm jitters on Monday morning, saying “the local banking sector’s exposures to Credit Suisse are insignificant” as the bank’s assets make up “less than 0.5%” of the banking sector of the city.
Still, the City’s banking shares fell: HSBC fell 6%, Standard Chartered lost 5% and Hang Seng Bank lost almost 2% on concerns about lenders’ exposure to bonds linked to Credit Suisse.
“Uncertainty could remain high for some time, even if recent bank support measures succeed,” said analyst Stephen Innes of SPI Asset Management.
“Huge Collateral Loss” Risk
Swiss Finance Minister Karen Keller-Sutter said the bankruptcy of Credit Suisse could have caused “enormous collateral losses”.
The agreement was warmly received internationally. The decisions taken in Bern “are decisive for restoring orderly market conditions and safeguarding financial stability,” European Central Bank chief Christine Lagarde said. “The euro area banking sector is resilient, with a strong capital position and liquidity.”
Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: “We welcome today’s announcements by the Swiss authorities to support financial stability.” The same was repeated by the British Finance Minister Jeremy Hunt.
The Fed and the central banks of Canada, Britain, Japan, the EU and Switzerland announced on Monday that they would launch a coordinated effort to improve banks’ access to liquidity. The SNB announced that 100 billion Swiss francs of liquidity will be available for the acquisition of UBS-Credit Suisse.
Keller-Sutter insisted the deal was “a commercial solution, not a bailout.” UBS chairman Kellenherr said: “UBS has nothing to do with the bank. We are determined to make this deal a great success. UBS will remain steadfast.”
Concern about jobs
The takeover creates a banking giant the likes of which Switzerland has never seen – and raises concerns about possible layoffs. The Swiss Bankers’ Association said “a lot is at stake” for Credit Suisse’s 17,000 staff, with tens of thousands of non-banking jobs potentially at risk.
Like UBS, Credit Suisse was one of the world’s 30 Global Systemically Important Banks – considered so important to the international banking system that they are colloquially called ‘too big to fail’.
But markets saw the bank as a weak link in the chain. Amid contagion fears following the collapse of two US banks, Credit Suisse’s share price fell more than 30% on Wednesday to a record low of 1.55 Swiss francs. This saw the SNB step in overnight with a $54 billion lifeline.
Employees at the Swiss bank said they were “deeply shocked” by the Credit Suisse takeover and called on UBS to keep job cuts to an “absolute minimum”.
Following the news that Credit Suisse Group AG will be sold to UBS Group AG, the bank issued two internal memos to staff Bloomberg reveals – a questionnaire covering topics such as job security, pay, bonuses and pensions – and a memo to the staff signed by the president as well as the CEO.
Information from AFP, Bloomberg
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