UBS Acquires Credit Suisse. Can the Crisis be Resolved?

UBS finally agreed to acquire Credit Suisse at a price of 0.76 Swiss francs and 3 billion Swiss francs (about 3.23 billion U.S. dollars) per share, which is far lower than the market value of Credit Suisse’s close to 8 billion U.S. dollars last Friday, mainly considering the future of Credit Suisse. Portfolio losses and litigation damages.

The merger of the two firms, to be completed by the end of 2023, will create a wealth management firm with $5 trillion in invested assets.

The Swiss government said it would provide more than $9 billion to cover some of the losses that UBS may suffer from its takeover of Credit Suisse. The SNB also provided more than $100 billion in liquidity to UBS to help facilitate the deal.

For Credit Suisse, although this acquisition has avoided the biggest crisis, shareholders still face a lot of losses due to the low acquisition price. At the same time, about $170 of Credit Suisse's "Additional Tier 1 Capital (AT1)" bonds were directly written off, and bondholders suffered huge losses. Credit Suisse employees are also facing a large number of layoffs, and the investment banking business is expected to shrink on a large scale.

For UBS, the value of this acquisition is that it can obtain a large number of high-quality wealth management customers and high-quality businesses other than investment banking, forming a monopoly pattern. But Swiss banks also bear very large risks and pressures. For the shareholders of Swiss Bank, what they originally held was the high-quality assets of Swiss Bank, but now they have merged many risky businesses of Credit Suisse. Credit Suisse's net profit loss in 2022 is 7.293 billion Swiss francs, and it is expected to continue to lose money in 2023. The net profit of UBS in 2022 will be 7.629 billion francs, and the acquisition of Credit Suisse will greatly drag down UBS's profits. Meanwhile, UBS is also responsible for more than $170 billion of Credit Suisse's debt.

Therefore, whether it is Credit Suisse or UBS, the stock price will inevitably be dragged down.

The banking crisis on the US side is also unresolved. U.S. government officials flew en masse to Omaha last Friday to seek Buffett's opinion. The most troublesome part of the banking crisis is that if it is not handled properly, it is easy to cause a chain reaction and lead to a systemic crisis.

In addition, this acquisition solution cannot completely solve the problems of Credit Suisse and the panic in the market. Once a run occurs, all banks cannot bear it. This time Credit Suisse was taken over by Swiss Bank, so who will take over next time?