(News Bulletin 247) – The action Credit Suisse collapsed by more than 60% Monday on the Zurich Stock Exchange the day after the announcement of its merger with UBS, which shows a severe discount for existing shareholders.
At 10:15 a.m., the title of the Swiss bank fell by 60.4% in particularly large volumes and UBS dropped 14%, while the SMI index dropped 1.4%.
The proposed merger provides for a takeover offer of three billion Swiss francs on the entire capital of Credit Suisse at a unit price of 0.76 francs, 60% lower than the price on Friday evening (1.86 francs).
‘This means that the market capitalization of the bank has grown from about 30 billion to three billion Swiss francs in the space of just over two years’, underline the analysts of Capital Economics.
If the market could be relieved by the end of the uncertainty surrounding the future of Credit Suisse, the specialists point out that many uncertainties remain as to the implementation of this ‘arranged’ marriage.
‘Credit Suisse will be absorbed by a bank in better health and with deeper pockets’, comment the teams of Capital Economics.
“This should give UBS management enough time to restructure Credit Suisse and reduce its investment banking activities, which are currently in great difficulty,” adds the London consultancy.
But Capital Economics points out that the history of forced marriages in the finance sector is mixed to say the least, as illustrated by the failed merger between ING and Barings in 1995.
Analysts seem particularly concerned about the impact of bad debts likely to appear following the merger agreement, which disadvantages holders of bond debt.
At Capital Economics, there is concern about the possibility of a possible aggravation of the losses of Credit Suisse, which could also damage the reputation of UBS.
‘The agreement may turn out to have been the turning point in the banking crisis we are currently experiencing, but we probably won’t know for a while,’ concludes the economic intelligence firm.
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