Has a full-scale banking crisis been avoided? UBS has announced a takeover of rival Credit Suisse for just over $3 billion – half of its valuation on Friday and a tenth of its valuation just two years ago. The deal, timed to conclude before the Asian markets opened, is intended to stop any domino effect that might have been created had Credit Suisse folded this week and started to call into question the viability of other banks. Reflecting the announcement, UBS shares fell 14 per cent in early trading.
Credit Suisse calls it a ‘merger’, UBS calls it a ‘takeover’ but it can also be called a ‘bailout’. The deal involves $9 billion of contingency credit from the Swiss government, pre-empting costs UBS will incur from the deal, and Swiss National Bank is stumping up $100 billion of liquidity support. This doesn’t happen in normal takeovers. Most strikingly, the ‘AT1’ bonds that Credit Suisse had issued (and had been valued at $17 billion) have been wiped
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