Credit Suisse goes to main competitor as stocks continue to fall.
Recently, Switzerland’s largest bank, UBS, made a deal to purchase its troubled competitor, Credit Suisse (SIX:CSGN), in order to avoid further market turmoil in the global banking sector. In addition, several global central banks have announced plans to open daily dollar injections for their national banks, according to Reuters.
At the opening of European trading, Credit Suisse’s shares fell 58%, as expected after UBS’s purchase of its competitor at a lower price than Friday’s closing. Much more unexpectedly, the buyer bank’s shares fell 14%, erasing all gains since October 2022. Investors see risks in the deal despite the “sweeteners” in the form of a $100 billion assistance package from the Swiss National Bank and coverage of losses.
Currency strategists at CITI see the solution to the banking crisis as ensuring transparency regarding asset quality and sufficient bank liquidity. This is especially true for financial institutions that have a lack of capitalization. Additional measures may also be required to stabilize trust, particularly in US regional banks. Increasing the limit for insured deposits would be helpful, but capital injections are likely to be more effective and necessary.
Experts have noted that the identification of new weaknesses in asset quality during the crisis has so far been limited, except for US regional banks.
Jefferies analysts in Europe have identified both positive aspects and risks in the recent deal. In particular, they assessed the deal positively due to the limited alternative options, as nationalization or winding down of CS would likely increase industry risks.