Markets hold their breath following Credit Suisse takeover

Markets hold their breath following Credit Suisse takeover
Credit Suisse in Zurich. © Plaza Financiera, Flickr Commons

The share price of major European banks has dropped significantly after fellow Swiss rival UBS rescued troubled bank Credit Suisse through a $3 billion purchase agreement. Shares of Credit Suisse have become almost worthless, dropping 66% overnight.

The last-minute takeover has done little to calm the nerves of investors, with major markets opening significantly lower after the announcement. UBS’ own share price – despite purchasing Credit Suisse at just a fraction of its market value – is down 8%, at times falling as low as 13%.

Fears for the European banking sector have been felt globally. In Asia, Hong Kong’s Hang Seng index dropped by 3% and the Nikkei in Tokyo is down over 1%.

Credit Suisse, already in significant trouble as a result of poor investments and corruption allegations, was significantly impacted by the collapse of two American banks, Silicon Valley Bank and Signature Bank, with fears that it did not have enough cash reserves to weather a dip in the US banking sector.

Domino effect?

The collapse of the Swiss lender marks the most significant crisis of confidence in the banking sector in over a decade. In Switzerland, the creditor is viewed as “too large to fail”, leading Swiss authorities to hastily approve UBS’ last-minute takeover of the financial giant.

Worryingly, there are echoes of the banking collapse in 2008 in which banking giant Lehman Brothers folded under the burden of subprime mortgages. Though experts say that such a scenario is unlikely, this has done little to calm the concerns of shareholders and bank customers.

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The Governor of the National Bank of Belgium (BNB), Pierre Wunsch, assured on Saturday that there was “no risk” to Belgian banks following the week of financial turmoil in the US and Europe: “If Belgian banks were to write off losses on their assets at market value, they would still have enough capital."

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