March 20, 2023
The past 10 days have been wrought with banking concerns. The newest casualty of this is Credit Suisse. For 167 years, Credit Suisse acted as one of the largest banks in Switzerland; Now, it will be acquired by their rival bank UBS. The banks issues were visible for the past year; From multiple changes to the CEO to rumors in the fall of failure, the bank could not sustain the losses it was taking to both reputation and value.
So, what happens now? Credit Suisse is going to be bought by UBS for about 60 cents a share—down about 90% from its 12-month high. To protect depositors, the Swiss government is offering to absorb a fair portion of the losses the bank suffered as well as offering a loan of up to 100 billion francs to maintain liquidity for the bank. The absorption is backed by a massive government guarantee, helping prevent what could have been one of the largest banking collapses since the fall of Lehman Brothers in 2008. "This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," UBS chair Colm Kelleher said in a statement.
Why does Credit Suisse get a bailout? Credit Suisse (and UBS as well as banks like JP Morgan Chase and Wells Fargo) are part of the 30 banks considered to be globally important. Meaning, if they fail, there could be ripples throughout the financial system causing even more harm.
What about First Republic? After the fall of Credit Suisse all eyes turn to First Republic. Functionally, they are being used as a barometer for the strength of regional banks however on Monday, First Republic fell as other regional banks grew. The drop is a result of the downgrade in credit rating of the bank. Large banks are in talks about acquiring the regional bank.
What does this mean 3,981 miles away in Rochester NY? It means talk with your advisor. Look into how your bank is managed. Regional banks may experience larger impact than massive national banks. Look into investment opportunities that arise form this situation. From every situation comes opportunity; reach out if you have questions or need some guidance.