Banking giant UBS is buying troubled rival Credit Suisse for a reported 3 billion Swiss francs (£2.6 billion), amid fears its collapse would send ripples throughout the global financial system.
The 167-year-old Credit Suisse was forced to borrow up to 50 billion Swiss francs (£45 billion) from Switzerland’s central bank as an emergency loan last week.
This briefly caused a rally in the bank’s stock price, but the move failed to reassure customers – with an outflow of deposits.
Shares plunged to a record low after its largest investor, the Saudi National Bank, said it would not invest any more money into the bank to avoid tripping regulations that would be triggered if its stake rose about 10%.
Tonight, Swiss president Alain Berset announced the sale to UBS which comes as part of an urgent effort to avoid fresh market-shaking turmoil.
Mr Berset said the deal was ‘one of great breadth for the stability of international finance’.
‘An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system’, he warned.
It comes after the UK arm of collapsed US lender Silicon Valley Bank was bought by HSBC after the government and Bank of England stepped in to ‘facilitate’ a private sale.
The US government also moved to halt a potential crisis amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.
New York-based Signature Bank crashed in the same weekend in the third largest failure in the US.
The only larger failure in US banking history was the 2008 collapse of Washington Mutual.
While smaller than UBS, Credit Suisse still wields significant influence, with 1.4 trillion US dollars (£1 trillion) in assets under management and significant trading desks around the world.
It is one of the largest investment banking employers in the City of London, with around 5,000 staff in the UK capital.
Many of the problems faced by the bank are different from the problems experienced at Signature Bank and Silicon Valley Bank.
Alarm bells started to sound on Tuesday when it emerged that Credit Suisse managers had identified ‘material weaknesses’ in the bank’s internal controls on financial reporting as of the end of last year.
The European Central Bank on Thursday approved a large, half-percentage point increase in interest rates to try to curb stubbornly high inflation, saying Europe’s banking sector is ‘resilient’, with strong finances.
ECB President Christine Lagarde said the banks ‘are in a completely different position from 2008’ during the financial crisis, partly due to stricter government regulation.
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