Switzerland may have a relatively small population of roughly 8.8 Million People, but bankers in Zurich, Switzerland, also may have had a majority of the world’s eyes watching their moves extremely closely in the latter weeks of March 2023. Why?
Because, in a rather bitter turn of events for many in the Swiss financial sector, Switzerland’s banking giant known as UBS– in a deal brokered by the Swiss National Bank and the regulatory body known as Finma- has begrudgingly agreed to acquire the entirety of their once bitter rival firm, the scandal-plagued Credit Suisse, for the relatively paltry sum of 3 Billion Swiss Francs or a little over $3 Billion USD, hoping to avert a global banking crisis from beginning in Zurich and representing an astonishing 99% drop in value for Credit Suisse from all-time high stock prices in the firm’s heyday.
For the once mighty Credit Suisse, a firm once seen as among the 30 most important financial institutions in the world, founded in 1856 by Swiss banking pioneer Alfred Escher, it is an unfortunate ending to what was one of the great stories and great empires in all of finance. Nonetheless, with investors and banking regulators on edge globally after the recent collapses in the USA of Silicon Valley Bank and Signature Bank- Swiss authorities acted swiftly to avert a crisis from getting out of control on their watch.
As was first reported by sources at CNN and other outlets- this deal was certainly one that seems to have come with many incentives for UBS, as the Swiss National Bank evidently said it would provide an incredibly substantial loan of up to 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to offset the costs of UBS acquiring the failed Credit Suisse and to boost liquidity. UBS Chief Executive Ralph Hamers will be CEO of the combined bank, and current Chairman Colm Kelleher will serve as Chairman.
From humble beginnings in Zurich, to (for a time) dominating the global financial sector with massive investment banking and private banking businesses for some of the wealthiest clients in the world, as well as hedge funds and giant corporations being regular loan recipients- Credit Suisse is now simply dissolved into its largest rival’s corporate coffers as a division of UBS.
Alas, what will ultimately become of Credit Suisse’s various businesses and the brand itself remains to ultimately be seen. However, a massive round of layoffs is feared to possibly be coming next, because the bank was planning layoffs anyway before the suddenly forced merger. Also, more importantly, the massive outflows of more than $100 Billion of customer money being withdrawn from Credit Suisse in the last months of the firm’s storied independence are one of the chief catalysts of any failures and misfortunes which fell upon Credit Suisse.
According to Yahoo! and other sources that have gauged Wall Street’s reaction and the reactions of those close to the situation in the global banking sector, the mood was certainly less than a happy one across Switzerland once news of UBS being essentially forced to acquire Credit Suisse started to set in, with Credit Suisse employees reportedly somber, and with UBS Chairman Colm Kelleher quoted as saying, “It’s a historic day, and a day we hoped would not come.”
To put things in perspective for those who don’t follow the banking industry, if this were sports it’s hypothetically like the Denver Broncos being forced to acquire the Las Vegas Raiders or the Los Angeles Lakers being forced to acquire the Boston Celtics… or it’s like McDonald’s being forced to buy Burger King if we’re relating it to food. The point is: this is a huge event AND an event that many never thought could happen, partly due to the bitter rivalry that UBS and Credit Suisse held for many years while battling for supremacy across the Swiss Banking world and global financial sector, and also because it bizarrely consolidates power into one firm more than ever before.
However, despite adamant objections from Credit Suisse’s top leadership in recent months that were meant to assure customers and shareholders of the long-term viability of the nearly 167 year old institution… it just wasn’t enough to save the franchise in the end. Especially when the largest shareholder of Credit Suisse, the Saudi National Bank, refused to increase their stake from 9.9% due to regulatory concerns, and their formerly largest backer prior- the USA firm Harris Associates sold their entire stake in the embattled bank in weeks leading up to the collapse of Credit Suisse, with both major events only helping the cratering stock to fall further and more rapidly in US Stock Markets and global exchanges all the same.
Thus, after every other possible lifeline to save Credit Suisse basically failed, there seemed not much left that could be done to save Credit Suisse as an independent company. Hence, in the weekend hours of March 17th, 18th, and 19th, Swiss National Bank Chairman Thomas Jordan, along with UBS Chairman Kelleher and the Chairman of Credit Suisse, Axel Lehmann, all gathered to hammer out emergency negotiations.
Sadly, the deal it seems nearly nobody wanted has ultimately happened, ready or not. Now, as a result of many trials and tribulations, Credit Suisse has been bought by UBS for a sum that may seem absurdly low. Patiently and impatiently alike, a world teetering on the brink of financial uncertainty awaits to see what the next chapter of Swiss (and global) finance may look like after this mega-merger of UBS and Credit Suisse.
At the moment, it seems, all we can do is stay tuned.