The largest Swiss bank, UBS, acquired Credit Suisse on Sunday, March 19, ending its 167-year history. On Friday, March 17, under pressure from the Swiss government, UBS bought its struggling competitor for 3 billion Swiss francs ($3.25 billion), less than half Credit Suisse's $8 billion market value two days earlier.
On March 20, Credit Suisse fell over 60% in European trading, while UBS fell 9%.
The Swiss government will provide UBS $10 billion to cover trade losses. The Swiss central bank will lend banks $108 billion for bankruptcy.
The Neue Zürcher Zeitung dubbed the takeover the “biggest economic earthquake in Switzerland since the rescue of UBS in 2008 and the grounding of Swissair in 2001.” With the US bankruptcy of Lehman Brothers 15 years ago, a rescue should prevent a bank crisis. Swiss Confederation President Alain Berset called the Credit Suisse takeover "essential" for Switzerland and the global banking sector.
Swiss politics were divided over the deal. The Free Democratic Party of Switzerland (FDP) supported it, saying the takeover was important to protect Switzerland's financial and economic hub. Cédric Wermuth, Swiss Social Democratic Party co-president, tweeted that little had changed since the 2008 financial crisis. He said, “The whole financial system is sick and absurd.” The state must save it again.
Marcel Fratzscher, president of the German Institute for Economic Research, believes the takeover may create one huge bank, which would cause instability if it collapsed.
The German economist told Die Tageszeitung that the situation is not as bad as before the 2008 global financial crisis. “Today, central banks' sudden interest rate increases have surprised many financial institutions and caused significant losses.”
“Not structural interconnection between financial institutions or inadequate provisioning in terms of liquidity and capital, but exceptionally aggressive monetary policy” is the issue today.
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"This takeover of Credit Suisse by UBS has sent many into a deep shock," remarked Olga Feldmeier, co-founder of Swiss investment platform Smart Valor, to Cointelegraph. UBS wealth management's executive director and sales head till 2014.
“The bank was struggling for a long time. Who would have guessed that the bank, once worth $80 billion, would be taken over by its archrival UBS for $3 billion? Feldmeier says more than 50,000 employees are stunned. Lenders holding Additional Tier 1 Capital bonds have suffered considerably more.
Feldmeier agreed that the alternative would be terrible. After all, where is it secure if one of the top 30 systemically important—and Swiss—banks goes bankrupt? In a systemic bank run, neither the Fed nor the ECB could help.”
Mauro Casellini, CCA Trustless Technologies Association board member and CEO of Bitcoin Suisse Liechtenstein and Bitcoin Suisse Europe until January 2023, agreed.
He told Cointelegraph that the Swiss government and regulators were right to act rapidly to find a market-friendly solution. “Although Credit Suisse had been experiencing issues for some years, outsiders didn't realize how serious the situation was. "This new "super bank" is stunning and regulatory pressure is likely to intensify," Casellini said.
Crypto benefits and suffers from the banking crisis. After UBS acquired Credit Suisse, the crypto market did well despite macroeconomic issues. Bitcoin $27,135 led the crypto surge, rising 15.5% to $28,671 on March 22. Ether $1,715 up 3.9%. At the start of the year, listed Bitcoin mining company share prices have climbed as much as 120% due to the BTC price rally.
Feldmeier believes it benefits crypto exchanges of all sizes. Feldmeier said, “More trading, better sales, some of the long lost tailwind would not hurt our industry. This also makes the next bull run around Bitcoin halving in March 2024 more likely.
If investors shift to cryptocurrencies, the crypto market may benefit from traditional financial institutions' losses.
But, the Credit Suisse merger and global financial risks and issues have a downside. Cryptocurrencies still need banks. If banks are struggling, they will be less likely to engage with crypto startups or hike costs, making life worse for the crypto industry.
Casellini claimed that Silvergate, Signature, and Credit Suisse's closures had generated "major dangers for the crypto sector." "To create trust with investors and ensure the market's long-term viability," the expert advised. Regulation will assist our business establish a successful and decentralized alternative to the traditional financial system.”
Due to shifting interest rates and bank rules, Casellini predicts greater problems and dangers. “It will be interesting to observe how governments, especially national banks, react and whether they save faltering banks or let them fail.”