The historic takeover by the UBS Group AG (SIX:UBSG) of its struggling Swiss counterpart Credit Suisse Group AG (SIX:CSGN) has not gone down well with investors.
The unprecedented move announced late on Sunday in the Swiss capital Zurich, ended a race against time by regulators to prevent a possible meltdown in global markets.
UBS Group AG (SIX:UBSG) agreed to purchase the Credit Suisse Group for around $3.25 billion following a weekend of tense negotiation overseen by Swiss authorities. The dealmaking came after the 167-year-old Credit Suisse Group AG (SIX: CSGN) faced extreme liquidity difficulties after investors withdrew funds in the wake of a series of crises and troubles with financial regulators.
The deal to buy Credit Suisse would be the first government-brokered rescue of a major bank since the global financial crisis of 2008.
CEO Ralph Hamers, who will be the CEO of the combined company, was positive about the liquidity and capital ratio concerns. He told Reuters in an interview on Sunday:
“We have a very good capital ratio at UBS, and we also have a very good liquidity position. So we have contained the risks in the markets,”
“The second step for us is to transform CS’s investment bank into an investment bank like UBS has. We call this a capital-light investment bank. In doing so, we are not taking so much risk.”
UBS Group AG (SIX:UBSG) Shares Down 10%, Credit Suisse Group AG (SIX:CSGN) Tanks 60%
Despite the positivity from the UBS CEO, investors thought otherwise.
Following the announcement that $17 billion worth of Credit Suisse’s additional tier-one bonds – a riskier form of debt – would be written out by the buy-out, UBS shares plunged 7%.
The decision to wipe out the additional tier-one bonds (AT1) debt was seen as a possible spark to cause turmoil in markets unprepared for such a large debt write-off.
Having closed at 17.20 CHF on Friday, UBS Group AG (SIX:UBSG) stock quickly fell more than 10% as European stock markets and indices opened.
Meanwhile, for Credit Suisse Group AG (SIX:CSGN) investors, it was a disaster as their stock plummeted more than 60% to hit an all-time low on Monday. Having closed at 1.86 CHF on Friday, Credit Suisse Group AG (SIX:CSGN) stock sunk to 0.68 CHF.
Rebound Ahead?
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, is optimistic that the plunge in shares and talks of crisis will only be temporary. After identifying the importance of the first few hours of trading, he said:
“In theory, there is no reason for the Credit Suisse crisis to extend, as what triggered the last quake for Credit Suisse was a confidence crisis – which doesn’t concern UBS – a bank outside of the turmoil, with, in addition, ample liquidity and guarantee from the SNB (Swiss National Bank) and the government.”
Indeed, after initial cliff face-type drops, both shares rebounded. Credit Suisse Group AG (SIX:CSGN) has climbed around 7% and UBS Group AG (SIX:UBSG) stock has rallied to recover more than half of its losses.
At the time of writing, UBS Group AG (SIX:UBSG) is trading at 16.10 CHF, down 5.89%. Meanwhile, Credit Suisse Group AG (SIX:CSGN) is trading at 0.73 CHF, down 60.49%.
