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UBS Shares Plunge After 'Emergency Rescue' of Embattled Swiss Rival Credit Suisse

© AFP 2023 / FABRICE COFFRINI A picture taken on on January 12, 2016 shows the logo of the Swiss global financial services company UBS at the entrance of a branch's building in Zurich.
A picture taken on on January 12, 2016 shows the logo of the Swiss global financial services company UBS at the entrance of a branch's building in Zurich.  - Sputnik International, 1920, 20.03.2023
In the wake of the collapse of US banks - Silicon Valley Bank (SVB) and Signature Bank - share prices of Zurich-based corporate bank and financial services giant Credit Suisse tumbled. UBS Group AG then promptly stepped in, offering to acquire the troubled Credit Suisse on Sunday, in a bid to return stability to the banking system.
Share prices of Switzerland's biggest bank, UBS, tumbled Monday in the wake of the Sunday-announced rescue deal for Credit Suisse.
USB sustained losses of more than 10 percent in early trading, as investors processed the acquisition, initially said to be worth three billion Swiss francs ($3.2 billion).
© Photo : TwitterTwitter screenshot featuring sliding UBS shares after Credit Suisse rescue deal.
Twitter screenshot featuring sliding UBS shares after Credit Suisse rescue deal. - Sputnik International, 1920, 20.03.2023
Twitter screenshot featuring sliding UBS shares after Credit Suisse rescue deal.
One of the reasons why shares in UBS were down on March 20 was that as part of the Credit Suisse bailout, the Swiss regulator Finma, had written down the value of about 16 billion Swiss francs ($17.3 billion) worth of what are called Additional Tier 1 (AT1) bonds to zero.
Also dubbed contingent convertible bonds or CoCos, these risky European bank bonds were a key funding source for the continent's finance institutions, analysts are cited as saying.
The fact is, the status of CoCos can be changed if a bank’s capital levels fall below a specified level. They can either be converted into equity (bank shares), or written off, to prop up a bank's balance sheet. What happened in this case to AT1 bonds, introduced in Europe after the global financial crisis of 2008, is no surprise, as they were designed for such moments to effectively act as "shock absorbers" when banks fail, experts clarified.
A sign of Credit Suisse is seen behind a clock at the headquarters of Switzerland's second-biggest bank in Zurich on March 18, 2023.  - Sputnik International, 1920, 19.03.2023
Swiss Banking Giant UBS Agrees to Buy Credit Suisse for $1 Bln After Behemoth Bank Goes Bust

'Emergency Rescue'

Amid fallout from the collapse of Silicon Valley Bank last week, and the toppling of Signature Bank and crypto-oriented Silvergate shortly thereafter, Credit Suisse’s share price plunged nearly 30 percent on March 15. As concerns were triggered about a liquidity crunch, UBS offered to buy the beleaguered Zurich-based bank.
On March 19, the Swiss National Bank announced the acquisition of Credit Suisse by UBS, adding that it would provide necessary assistance for the deal.
"UBS plans to acquire Credit Suisse ... Under the terms of the all-share transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to CHF 0.76/share for a total consideration of CHF 3 billion," UBS said in a statement.
UBS chairman, Colm Kelleher, hailed the the acquisition as “attractive” for UBS shareholders, but added that “as far as Credit Suisse is concerned, this is an emergency rescue.”
“We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” he added in a statement. “Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses,” Kelleher said.
A food delivery worker enters Silicon Valley Bank in Santa Clara, Calif., Friday, March 10, 2023.  - Sputnik International, 1920, 16.03.2023
US Lawmaker Blames SVB Failure on 'Bidenflation' Amid Concerns of Looming Bailouts
Between March 8-10, Silicon Valley Bank failed with breakneck speed, collapsing within 48 hours after a bank run triggered by an announcement that it would be raising fresh capital to come up with cash to float operations. A range of factors have been faulted for the bank’s failure, ranging from incompetence of senior officials, to the US Federal Reserve’s unprecedented series of interest rate hikes in recent months.
Amid the banking turmoil, a group of central banks announced concerted measures to ensure the steady flow of dollars across the global financial system on March 20. A new frequency for the US dollar liquidity "swap line" arrangement has been announced, set to remain in place "at least through the end of April." Seven-day maturity operations which aid foreign banks in receiving access to US dollar financing will be held daily, instead of on a weekly basis.
According to a joint statement by the US Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan, and the Swiss National Bank, the move is a "coordinated action to enhance the provision of liquidity.”
A U.S. flag waves outside the New York Stock Exchange, Monday, Jan. 24, 2022, in New York. Stocks are drifting between small gains and losses in the early going on Wall Street Tuesday, May 3, 2022 as investors await Wednesday's decision by the Federal Reserve on interest rates. The Fed is expected to raise its benchmark rate by twice the usual amount this week as it steps up its fight against inflation, which is at a four-decade high. - Sputnik International, 1920, 17.03.2023
Recession, Insolvency, Derivative Risks: Why Looming US Crisis Could be Worse Than in 2008
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