Written by: Investors Compass
Just yesterday, we discussed the possibility of UBS acquiring Credit Suisse (as well as its significance), and it now appears that this is taking place. With worries about potential contagion risks in the European financial industry, the Swiss banking giant UBS has allegedly agreed to buy Credit Suisse for more than $2 billion. The market valuation of Credit Suisse has decreased in recent years, and this week it borrowed $54 billion from the Swiss National Bank.
Credit Suisse, a Systemically Important Firm: Implications for International Financial Markets
As one of the 30 banks deemed to be systemically significant, Credit Suisse has raised questions about the possible effects of its failure on international financial markets. The banking industry is attempting to avert potential unrest when the markets reopen with the purchase by UBS.
10,000 jobs might be lost as a result of the acquisition if the two banks merge, which might have a negative impact on the economy. Due to this, the Swiss Bank Workers Association has called for the formation of a task force to address employment danger. Also, it has been claimed that UBS has asked the Swiss government for $6 billion to pay for costs associated with closing down specific divisions of Credit Suisse as well as any potential legal costs. The negotiations have, however, run into some big problems.
Financial Sector Requests Assistance from Authorities
According to reports, at least two eminent European banks are looking into the prospect of a ripple effect that would affect the region’s financial industry. To deal with any potential consequences, these banks are looking for more definite support signals from the Federal Reserve and the European Central Bank. Concerns about contagion risks have also caused European banks to limit their trading with Credit Suisse. The fate of the rate hike and its effect on the banking industry are still up in the air as the Fed’s policy meeting on Tuesday and Wednesday draws near.
Conclusion
While the purchase of Credit Suisse by UBS is intended to stop more turbulence in the banking industry, it may also have substantial effects on the world’s financial markets. The banking industry is seeking to authorities for confidence and help as a result of worries about contagion risks, job losses, and UBS’s appeal for government assistance. In the middle of the news-driven, erratic, and polarised market rally effort, investors should exercise caution.
