After it was revealed that banking behemoth UBS would purchase its troubled competitor for nearly $3.25 billion in a deal arranged by regulators to prevent further market-shaking turmoil in the global banking system, shares of Credit Suisse fell 63% in early trading on Monday.
On the Swiss stock market, UBS shares fell 14% in the opening minutes of trading.
After a proposal for Credit Suisse to borrow up to 50 billion francs ($54 billion) failed to reassure investors and the bank’s customers, Swiss authorities encouraged UBS to acquire its smaller rival. Following the collapse of two U.S. banks, which raised concerns about other possibly unstable global financial institutions, shares of Credit Suisse and other banks fell precipitously.
Authorities are concerned about the repercussions if Credit Suisse fails because it is one of 30 financial organizations considered to be globally systemically important banks.
Alain Berset, the president of Switzerland, described the agreement as “one of great breadth for the stability of international finance” when he made the announcement on Sunday evening. “The country and the global financial system would suffer immeasurable consequences from an unchecked collapse of Credit Suisse.”
The emergency ordinance enabling the merger to proceed without shareholder approval was approved by Switzerland’s executive branch, a seven-member governing body that includes Berset.
Despite regulators’ best efforts to calm the markets, they stay uneasy. Monday saw a decline in global financial markets, with Hong Kong’s main index falling more than 3%. Market benchmarks started lower by more than 1% in Frankfurt and Paris. Sydney, Shanghai, and Tokyo also said no. Futures on Wall Street decreased by 1%. Over $2 per barrel was lost in oil rates.
Axel Lehmann, chairman of Credit Suisse, referred to the sale to UBS as “a clear turning point.”
Lehmann said, “It is a historic, sad, and very challenging day for Credit Suisse, Switzerland, and the international financial markets. The emphasis is now on the future. And Credit Suisse’s 50,000 staff members, 17,000 of whom work in Switzerland.
