UBS Buys Credit Suisse in Effort to Avoid Market-Shaking Turmoil

Swiss President Alain Berset announced on Sunday night that banking giant UBS is buying its smaller rival Credit Suisse in an effort to avoid further market-shaking turmoil in global banking.

Berset called the announcement “one of great breadth for the stability of international finance,” and emphasized that the uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.

Credit Suisse’s Importance to Global Finance

The Financial Stability Board designated Credit Suisse as one of the world’s globally systemic important banks, which means regulators believe its uncontrolled failure would lead to ripples throughout the financial system, not unlike the collapse of Lehman Brothers 15 years ago.

Sunday’s news conference follows the collapse of two large U.S. banks last week, which spurred a frantic, broad response from the U.S. government to prevent any further bank panics.

Still, global financial markets have been on edge since Credit Suisse’s share price began plummeting this week.

While many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures led to a significant rescue effort by the Federal Deposit Insurance Corporation and the Federal Reserve, their downfall does not necessarily signal the start of a financial crisis similar to what occurred in 2008.

UBS’s Acquisition of Credit Suisse

Despite being smaller than Credit Suisse, UBS wields considerable influence, with $1.4 trillion assets under management.

The firm has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions.

Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.

ECB Approval of Interest Rate Increase

Despite the banking turmoil, the European Central Bank approved a large, half-percentage point increase in interest rates on Thursday 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 because of stricter government regulation.

Final Thoughts

The deal caps a highly volatile week for Credit Suisse, most notably on Wednesday when its shares plunged to a record low.

Its current troubles began after Credit Suisse reported on Tuesday that managers had identified “material weaknesses” in the bank’s internal controls on financial reporting as of the end of last year.

While the acquisition by UBS may bring some stability to the banking industry, it remains to be seen how it will impact the broader financial markets.