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UBS Group emerged as Switzerland’s one and only global bank with a state-backed rescue of its smaller peer Credit Suisse, a risky bet that makes the Swiss economy more dependent on a single lender.
The unprecedented move announced late on Sunday in Zurich capped a race against time by regulators to avert a meltdown in global markets. Switzerland is pledging more than 160 billion francs ($173 billion) in loans and guarantees to underpin the new group, guarding against further risks undermining the lender.
The transaction – the first rescue of a global bank since the financial crisis of 2008 – grants enormous clout to UBS, ridding it of its main rival. It will change the landscape of banking in Switzerland, where branches of Credit Suisse and UBS are dotted everywhere, sometimes just meters apart.
The two lenders have been pillars of global finance for decades. The banks, two of the most systemically relevant in global finance, hold combined assets of up to 140 percent of Swiss gross domestic product in a country heavily dependent on finance for its economy.
Following the 2008 financial crash, politicians pledged to never bail out banks again. The Credit Suisse rescue, orchestrated with public money, shows banks’ continued vulnerability and how their problems can quickly rebound on their home country.
But it also removes a competitor to Wall Street, with UBS planning to pare back much of Credit Suisse’s investment bank.
“Under normal circumstances, I would say it is an absolutely fantastic deal for UBS,” said Johann Scholtz, equity analyst at Morningstar, covering European Banks, Amsterdam. “In the current environment, it is a bit more complicated as there is a lot of uncertainty generally in the markets.”
Soon after the announcement, central banks including the Federal Reserve, the European Central Bank and the Bank of Japan said they would enhance dollar swap lines, helping calm investors rattled by turmoil in the banking sector.
