Credit Suisse stock nosedives 65%, UBS falls nearly 16% as investors digest $3.25 billion merger deal
3 min read 20 Mar 2023, 03:11 PM ISTOn Sunday, both UBS and Credit Suisse announced the takeover deal. UBS will be the surviving entity. The Zurich-headquartered bank will acquire Credit Suisse for CHF 3 billion (approximately $3.25 billion).
PremiumA bloodbath emerged in banking stocks globally after Switzerland-based bank UBS agreed to save another embattled Swiss lender Credit Suisse for $3.25 billion. This deal was inked after the country's regulators asked both companies to conclude the transaction for restoring necessary confidence and stability in the Swiss economy and the banking sector. However, investors have shown a bearish response to both UBS and Credit Suisse.
At the time of writing, Credit Suisse's share price traded at CHF 0.78, plunging by 58.15%. However, in the early trade, the stock nosedived by a whopping 64.52% and even touched an intraday low of CHF 0.66.
A similar mood was seen in UBS Group's share price, however, the selling was far lower than compared to Credit Suisse.
UBS stock traded at $32.95, tumbling by 9.40% currently. In the early deals, the stock dipped by at least 15.96% with an intraday low of $32.86 compared to the previous closing.
Last week, on Friday, Credit Suisse stock was around CHF 1.86 and UBS stood at $36.37.
On Sunday, both UBS and Credit Suisse announced the takeover deal. UBS will be the surviving entity. The Zurich-headquartered bank will acquire Credit Suisse for CHF 3 billion (approximately $3.25 billion).
The move comes after Swiss National Bank's plan to give a 50 billion francs loan to Credit Suisse failed to ease the dangling confidence of investors. Swiss Federal Department of Finance, the Swiss National Bank, and FINMA asked both UBS and Credit Suisse for a merger agreement to restore confidence in the economy and banking system.
Under the merger, all shareholders of Credit Suisse will get 1 equity share in UBS for their 22.48 shares in Credit Suisse. This exchange ratio reflects a merger consideration of CHF 3 billion for all shares in Credit Suisse.
The merger is expected to complete by end of 2023 if possible.
Noteworthily, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty.
Axel P. Lehmann, Chairman of the Board of Directors of Credit Suisse said: “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome."
While UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue."
Also, on Sunday, FINMA informed Credit Suisse that its Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion will be written off to zero.
Although the deal is seen as a significant step ahead, investors are still trying to cope with the announcement.
Such merger deals are a well-known practice, especially after the 2008 financial crisis. As per the Bloomberg report, three months after Lehman Brothers collapsed in September of 2008, such swap lines had been tapped for $ 580 billion. Swap lines also were rolled out during market turmoil in the early stages of the COVID-19 pandemic.
Max Georgiou, an analyst at Third Bridge told Bloomberg that "today is one of the most significant days in European banking since 2008, with far-reaching repercussions for the industry," adding, "these events could alter the course of not only European banking but also the wealth management industry more generally."
Amid UBS' takeover of Credit Suisse, Veteran banker Uday Kotak on Monday tweeted that "signal for all bankers and stakeholders". Kotak Mahindra Bank CEO said the Credit Suisse saga highlighted the importance of risk-return assessment in investments over the size of a financial institution.
