UBS Examines Takeover of Credit Suisse Amid Market Turmoil and Regulatory Pressure
According to insiders, UBS AG was exploring the possibility of taking over Credit Suisse, which has been hit hard by recent market turmoil. The Swiss government may offer a guarantee to cover any risks associated with the deal. Credit Suisse, which is 167 years old, is the largest lender to be caught up in the market chaos triggered by the collapse of Silicon Valley Bank and Signature Bank in the US over the past week. To quell concerns of a broader banking crisis, UBS has been urged by Swiss regulators to consider taking over Credit Suisse. Under the plan being discussed, Credit Suisse’s Swiss business could be spun off.
Credit Suisse’s share price has fluctuated wildly this week, leading it to tap $54 billion in central bank funding. By Friday, the bank had lost 25% of its market value. Its vulnerability has caused at least four of its major rivals to restrict trades involving Credit Suisse or its securities. Credit Suisse is among the world’s largest wealth managers and is considered one of 30 globally systemically important banks. Its failure could cause ripples throughout the entire financial system.
The financial woes of Credit Suisse have raised concerns about the banking industry’s stability, particularly in Switzerland, which has long been seen as an icon of banking stability. Goldman Sachs downgraded its recommendation on exposure to European bank debt, warning that a lack of clarity on Credit Suisse’s future could put pressure on the broader sector in the region.
The situation has led to calls for greater oversight of the banking sector, with US President Joe Biden urging Congress to give regulators more power, including the ability to impose higher fines, claw back funds, and bar officials from failed banks. Democratic lawmakers have also called for regulators and the Justice Department to investigate the role of Goldman Sachs in the collapse of Silicon Valley Bank.
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The collapse of Silicon Valley Bank has led to concerns about weaknesses in the global financial system, causing banking stocks to plummet. US regional bank shares have fallen sharply, and the S&P Banks index posted its worst two-week calendar loss since the pandemic began. Despite some of the biggest names in US banking providing a lifeline for smaller lenders like First Republic Bank, investors were startled by the disclosures on its cash position and how much emergency liquidity it required.
The failure of Silicon Valley Bank has highlighted how a relentless campaign of interest rate hikes by central banks, including the US Federal Reserve and the European Central Bank, has put pressure on the banking sector. Although many analysts and regulators claim that Silicon Valley Bank’s downfall was due to its specialized, tech-focused business model, a senior official at China’s central bank warned that high interest rates in the major developed economies could continue to cause problems for the financial system.
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