It is safe to say that the past couple of years have been turbulent for the finance industry. Headlines have been littered with the demise of many banks, including Silicon Valley Bank. However, some banks were rescued and acquired by others. One of these includes the acquisition of Credit Suisse by the giant UBS.
Before all of this turmoil, there were two very large banks in Switzerland, Credit Suisse and UBS. However, the pandemic hit Credit Suisse particularly hard. Despite many attempts at a turnaround, including the effort in October 2022, which involved making 9,000 people redundant to cut costs, in February 2023, Credit Suisse reported massive overflow. When this news hit the market, their shares fell 15%. This rough patch continued into March.
The month of March consisted of events monumental to the finance world. The month began with more bad news being released about the bank's financial records. This included Credit Suisse releasing a report admitting "material weakness" in its financial controls. Pressure was added from the crash of the Silicon Valley bank; the finance industry was in trouble and, as a result of all these external issues, investors, as well as consumers, were rapidly losing confidence in Credit Suisse. On March 15th, the Chairman of the Saudi National Bank, a very powerful and influential figure in finance, declared he would "absolutely not" offer additional funding to bail Credit Suisse out of its financial trouble. This one statement panicked many, causing the stock to plummet another 24%. Not every 24 hours after this news broke, a loan was granted to the bank from the Swiss government to provide a 50 billion CHF lifeline.
Despite these government efforts, Credit Suisse's value continued to plummet. This left the bank with two options: be acquired by another bank or go bankrupt(neither is exactly ideal). With a slight push by the Swiss government, UBS came to the rescue and on March 19 th they agreed to take over Credit Suisse for only CHF 3 Billion in stock and consume their losses, which at this point amounted to CHF 5 billion. Shareholders got only CHF 0.79 per share, a tenth of its value from 2020. To summarize, UBS bought Credit Suisse for pennies on each Swiss frank.
Now, onto its global effect and the transaction's aftermath. UBS took a brutal approach with the takeover and publicly stated that it planned to lay off more than half of its inherited 45,000 employees. The merger also ended Credit Suisse's 167 years of independence. While Credit Suisse was saved, its company culture and employees were not! However, for UBS, this transaction proved to be very successful; UBS now has a leading position in many key markets and oversees $5 trillion of assets.
The question of why the Swiss government pushed UBS to complete this transaction is something to consider. In 2008, Lehman Brothers, a bulge bracket bank, went bust. This had detrimental effects on all markets, customer savings, many employees and the world. The negative ripple effects were felt by many. Another key impact of a bank crashing is the lack of trust left in the banking system, whilst I won't go into too much detail, this is very bad for the economic state of the world. The Swiss government saw all these possible negative effects and decided that they had to act. They first tried to bail the bank out, which was unsuccessful. Then they turned to UBS to accept a merger. Thereby ensuring the customer and many employees a better future.
In conclusion, this was a large transaction which will impact the future of finance. UBS is now a leader in all sectors and the dominant bank in Switzerland. Who knows which bank will see its downfall next!
By Annika Bjerregaard
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