UBS reached an eleventh-hour deal to acquire rival Swiss bank Credit Suisse yesterday, the latest effort to stabilize a global banking system that looks increasingly shaky (and is giving off way too many 2007-08 vibes for our liking).
What happened: Swiss officials used emergency powers to rush through a deal allowing UBS to buy Credit Suisse for CHF0.50 per share, well below the bank’s last closing price of CHF1.86.
- Credit Suisse’s share price has plunged almost 75% in the past year, and its clients have fled en masse in recent weeks, fearing that the 167-year-old bank was on the verge of insolvency.
- Like some people who really miss high school, Credit Suisse peaked a while ago—since the 2007-08 financial crisis, the bank has been rocked by scandal after scandal and faced a steady outflow of clients.
Why it matters: The UBS takeover avoids a worst-case scenario in which a collapse of Credit Suisse could have triggered a broader financial crisis.
- That was a very live possibility over the weekend, and Swiss officials feared that the bank would fail if a deal was not reached by the time markets opened today.
- Credit Suisse is one of thirty financial institutions in the world deemed “systemically important” by the Financial Stability Board—in other words, too big to fail without risking a financial crisis.
Zoom out: In the past week, Silicon Valley Bank, Signature, First Republic, and now Credit Suisse have all either collapsed or suffered near-death experiences. The question now is whether these are one-off failures contained to particularly poorly-run institutions, or the early stages of a crisis that could turn the global market into Swiss cheese.