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UBS Credit Suisse acquisition

UBS Credit Suisse purchase closed at more than 3 billion euros. The largest Swiss bank has now marked a historic milestone by acquiring its bankrupt rival.
Credit Suisse, bank, Más Colombia,

On June 12, Zurich witnessed the UBS Credit Suisse purchase. The Swiss banking leader, UBS, finally closed the deal that would mark a milestone in the financial world.

Experts affirm that it was an offer that Credit Suisse could not refuse following the Swiss government’s opinions in view of the imminent bankruptcy of the bank.

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No more crisis after UBS Credit Suisse acquisition?

The Swiss Confederation granted UBS, the fifth largest bank on the European continent, a guarantee of more than 9 billion dollars for the purchase of its rival.

The amount granted is intended to mitigate the risks of the purchase, as the collapse of the Credit Suisse bank would have left billions of euros in losses and multiple financial challenges.

The Swiss giant, UBS, closed the purchase for 3 billion euros, equivalent to around 75% less than the real value of the entity, and assumed losses of around 4.9 billion euros.

Although several banking institutions have so far expressed their support for the UBS Credit Suisse purchase, experts suggest that the situation could become even more complex. 

Despite the support of the Swiss Central Bank and other major banks around the world, the market reaction to UBS Credit Suisse acquisition is far from ideal.

Credit Suisse shares are down more than 60% and, as a result, UBS shares are entering a decline as well.

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The collapse of Credit Suisse

Experts affirm that the collapse of the second largest bank in Switzerland is related to the collapse of Silicon Valley Bank, which on March 10 was brought before the Federal Deposit Insurance Corporation (FDIC) after its collapse. 

Although it seems that these two entities are not very closely connected, the reality is that in the financial world, large banking groups are closely connected to each other. Such is the case of what happened with Credit Suisse and the collapse that ended in its purchase.

In the case of Silicon Valley Bank, the collapse arose after presenting liquidity inconsistencies, i.e. the bank no longer had available cash. On March 8, the bank announced that it was seeking to raise more than 2 billion dollars to cover its losses.

The news, of course, was received as an alarm by depositors, who rushed to withdraw their funds. The bank’s clients, who were mostly from the corporate technology world, marked the beginning of the end.

According to experts, the lack of liquidity in these cases would be a consequence of the financing of businesses with long-term profits, however, how did this collapse end up triggering the fall and subsequent UBS Credit Suisse purchase?

Market instability quickly travels to involve other banking groups, and the distrust and fear of depositors begins to impact the market, causing the share value to drop radically

This generalized distrust of banking institutions, which spreads around the globe, prompts central banks in all countries to announce that they will make more liquidity available to banking groups.

This action can be interpreted as a lifeline for the world’s largest banks, which in the case of Switzerland would be supported by the central bank of the country with the third largest reserve in the world, with around one trillion dollars.

Solvency crisis or liquidity crisis?

To understand the current behavior of the financial market, in which there is an atmosphere of distrust towards banking institutions, it is first necessary to understand the difference between a liquidity crisis and a solvency crisis. 

For example, in the case of the UBS Credit Suisse purchase, experts point out that the collapse could be due to a solvency crisis.

When talking about a liquidity crisis, experts refer to a lack of available cash, as in the case of Silicon Valley Bank. 

Such a crisis can originate when the bank concentrates its operations mainly in companies or startups whose financing is demanding at an early stage and whose profits are long term.

In the case of a solvency crisis, financial experts would be talking about entities that systematically spend more than they have.

It is speculated that this is the case of Credit Suisse, since the bank was acquired by UBS for a significantly lower value than the real one, which denotes the state of urgency in which the entity was.

In addition, several experts affirm that Credit Suisse’s bankruptcy began in 2021 after reporting losses of more than 1.5 billion euros. 

The amount would have been the result of operations with high-risk firms that collapsed and left the corporation with no way to recover the financing. However, no single factor can be singled out as the cause of the collapse of a banking institution of such magnitude.

It is worth mentioning that in the particular case of Credit Suisse there is a series of scandals that, like a domino effect, contributed to the fall of the giant: multiple complaints and lawsuits issued in the last two decades affected the reputation of the entity and, consequently, confidence in the bank. 

Thus, after the fall of Silicon Valley Bank, Credit Suisse suffered the imminent contagion of a crisis that would unleash its collapse.

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Secrets of Credit Suisse

The entity was in the eye of the storm after the resignation of the then president of the bank, Antonio Horta-Osório, on January 17, 2022, who held the position for only 9 months. 

The resignation followed allegations that he had violated quarantine measures and sanitary restrictions imposed by the Swiss government during the pandemic. The resignation was preceded by the scandalous departure of the previous president following an espionage case.

However, this is not the banking group’s only scandal. Years ago Credit Suisse was linked to money laundering, corruption and various forms of tax evasion. 

In addition, the entity was accused of being responsible for scams related to substandard mortgages. 

According to information leaked by the Spanish media Infolibre, the multiple scandals do not only cover Swiss territory, there is also talk of fraudulent transactions involving countries such as Nigeria, the United States, Russia, Hong Kong, France, Singapore, Mozambique, Germany, Brazil, and even Venezuela and Argentina. 

Nevertheless, the UBS Credit Suisse purchase has the global financial market on tenterhooks. Experts in the field remain expectant in the face of a crisis that, at least for the time being, is still ongoing.

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