Credit Suisse shares plummeted on Monday after Swiss authorities reached an agreement with Credit Suisse’s larger competitor UBS to purchase the struggling bank at a discount. Yet, European bank stocks and the broader market advanced as investors pondered if efforts to bolster banks can prevent more disruptions to the global financial system.
Credit Suisse shares finished roughly 56% down a day after UBS announced it would acquire its sister Swiss bank for a lowball price of 3 billion Swiss francs ($3.25 billion). Credit Suisse’s troubles originate from concerns over its internal controls. The shares traded close to the price at which they are valued in the transaction.
In an effort to prevent more unrest following the failure of two U.S. banks, Swiss officials arranged the transaction. The transaction was disclosed late Sunday, a sign of the intense, behind-the-scenes negotiations to address the matter before the markets opened.
Uncertainty remains as to how the merger will affect the merged company and what the future holds for the broader banking industry. According to analysts, some recent forced bank mergers did not benefit shareholders in the long term.
It is possible that no other banks would encounter difficulties, but it is also feasible that “we just proceed from one weak institution to the next,” according to Vicky Redwood, senior economic consultant at Capital Economics.
There are no other apparent prospects like Credit Suisse, but it is “difficult to forecast where issues may develop,” she added.
On the Swiss stock market, UBS shares originally declined but closed up 1.3%. The agreement sent other European bank stocks tumbling, with only a few recovering their losses. Germany’s Deutsche Bank, France’s BNP Paribas, and Italy’s UniCredit all closed with gains, while London’s Barclays fell 2.3%.
The Swiss government pushed UBS to acquire its smaller competitor after a central bank proposal for Credit Suisse to borrow up to 54 billion Swiss francs ($50 billion) failed to reassure investors and consumers last week.
Unlike the vulnerabilities that brought down Silicon Valley Bank and Signature Bank in the United States, notably excessive interest rates, many of Credit Suisse’s troubles were unique. These U.S. failures have increased concerns about the stability of other global financial institutions, including the already troubled Swiss bank.