Shares of Swiss bank Credit Suisse plunged 55.74% this Monday, to 0.82 francs each, after an emergency merger with UBS (also from Switzerland) was announced over the weekend to save it from a collapse like the one suffered by the Silicon Valley Bank (SVB).
In contrast, shares of UBS Group AG, which will absorb Credit Suisse, rose 1.26% on the Zurich Stock Exchange to 17.33 francs.
At the start of the trading session, UBS shares fell more than 10%, from where they recovered to close in the green.
“In theory, there is no reason for the Credit Suisse crisis to be prolonged, since what triggered the last earthquake was a crisis of confidence that does not concern UBS, a bank out of the turbulence, with ample liquidity and bank guarantee. Swiss National and the government,” Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, told Reuters.
They pay less than it’s worth
UBS, the fourth largest bank in Europe by market value, will acquire its rival for 3 billion Swiss francs (or 3.25 billion dollars), at 0.75 Swiss francs a share, in what is the first merger of systemically important banks since the financial crisis of 2008.
The purchase price is less than the $8 billion market value that Credit Suisse closed on Friday of last week (before the deal).
Even with the losses of this Monday, the market capitalization with which the Swiss bank closed (4.020 million dollars), continues to be above the amount that UBS will give to Credit Suisse shareholders.
Both shares and the market value of Credit Suisse closed Monday at a record low. The company was listed on the Swiss Stock Exchange in 2001 and had been in operation for 167 years.
Its shares reached an all-time high of 92.55 Swiss francs in May 2007, for a capitalization of more than 80 billion dollars.
The agreement and its terms were negotiated mainly by the Swiss National Bank and the Swiss Financial Market Supervisory Authority (Finma), according to sources with knowledge of the case quoted by the British newspaper Financial Times.
Swiss authorities found it necessary to negotiate the merger because letting Credit Suisse fail would have “unforeseeable consequences for the Swiss economy and the global financial system,” according to the Swiss federal Department of Finance.
Since last Wednesday, the day that Credit Suisse requested an emergency loan from the Swiss National Bank, the Swiss bank’s shares have plummeted on the stock market and its clients began withdrawing deposits at a rapid pace, raising fears that it could be provoked. a new bank run like the one suffered a week before by the SVB in the United States.
Credit Suisse shares have fallen 63.39% since last Tuesday’s close (before the loan request was announced), while so far this year they have accumulated a loss of more than 70 percent.
In addition to the acquisition of Credit Suisse, the agreement also contemplates a liquidity line for 100,000 million francs for UBS granted by the Swiss Central Bank, in addition to seeking to introduce legislation so that the six-week period of consultations can be skipped among UBS shareholders.
With the merger, UBS will become the third largest asset manager in the world, with a portfolio of 5.9 trillion dollars, only surpassed by Vanguard and BlackRock, according to the consulting firm Genuine Impact.
The bonds issued by the main European banks fell in the session on Monday after it was revealed that the purchase agreement does not contemplate compensation for the holders of certain Credit Suisse bonds.
