Everything you need to know about the purchase of Credit Suisse by UBS
A wind of panic blows on the stock markets. Credit Suisse is unable to reassure investors and the share collapses on the stock market during the session of March 15, 2023.
1) Why did the Credit Suisse share fluctuate so much on the markets?
At the close of trading on March 15, Credit Suisse shares lost -24.24% and up to -30% during the day to hit a new all-time low of 1.55 Swiss francs (or $1.67).
The dizzying fall of the share began after statements by the president of the Saudi National Bank, the first shareholder of Credit Suisse since the capital increase last November. As part of this offering, 307.6 million shares were acquired by Saudi National Bank (SNB) in November, the largest Saudi bank, becoming the largest shareholder of Credit Suisse (9.9% stake).
On March 15, Ammar al-Khudairy, chairman of Saudi National Bank, announced that he "absolutely" does not plan to inject more money in an interview with Bloomberg TV. The Swiss bank has been in turmoil for the past two years due to the bankruptcy of the British financial company Greensill Capital.
The bankruptcy of the British financial company Greensill Capital on March 8, 2022, specialized in short-term loans to companies, marked the beginning of a series of scandals that have weakened the bank Credit Suisse. Since the bankruptcy, Credit Suisse stock has lost more than 83% of its value.
Greenshill's business was to lend money to companies to pay their suppliers at a small discount. The company was able to profit from this scheme through a securitization system.
Greenshill sold a portion of these receivables as financial securities (debt securitization) to large investors, who placed them in funds sold to outside investors seeking returns in a low interest rate world. To reduce the risk of default in the event of non-payment, insurance was purchased for 75% of the portfolio.
In this way, Greensill allowed suppliers to receive payments from their customers before the due date and through a third party. Credit Suisse's funds were invested in these securitized debts.
In the case, Credit Suisse "seriously failed to meet its prudential obligations to manage the risks" associated with Greensill at the highest level.
2) What are the similarities with the financial crisis of 2008?
Nicknamed the "subprime" crisis, a so-called subprime bank loan, the global financial crisis of 2007-2008 is a financial crisis marked by a liquidity crisis and sometimes by solvency crises both at the level of banks and governments. A situation in which a bank, even if solvent, does not have the money to pay its debts.
If Credit Suisse's situation were to deteriorate, the stakes would be colossal for the entire financial system. Considered one of the 30 "too big to fail" banks, the Swiss bank has close ties to all the other banks because of its size. As a result, if it were to fail, it would spread to the entire financial system by domino effect, as did Lehman Bank.
Today, the case is making news in the financial world because Credit Suisse seems to be experiencing difficulties in terms of liquidity. According to a manager, "Credit Suisse does not seem to be in good health for several months" ... Indeed, financial professionals including managers say they have been contacted by the Swiss bank about particularly interesting returns.
3) How can we prevent this from spreading to the whole system?
After falling sharply, the day before, Credit Suisse's stock, which had fallen 25%, rose 30% on Thursday, March 16, when the stock market opened, thanks to the lifeline launched by the Swiss National Bank.
This weekend, efforts are being stepped up to save Credit Suisse before the stock market opens on Monday morning, to avoid a general panic in the markets and prevent it from spreading.
ECB (European Central Bank) President Christine Lagarde acknowledged: "It is not possible to determine at this stage what path to take on rates". A new financial crisis cannot be ruled out.
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4) UBS will buy Credit Suisse
On Friday, the Financial Times announced the willingness of UBS (first Swiss bank) to buy its competitor in great difficulty. A proposal of total or partial repurchase which for the Swiss regulators seems to be a plan A to stop the crisis of confidence suffered by Credit Suisse, the second largest bank in the country.
On Sunday, March 19, after a long weekend of talks between the boards of directors of the two banks, - UBS agreed to buy Credit Suisse for more than two billion dollars (1.87 billion euros) reports the Financial Times.
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