Amid reports that struggling lender Credit Suisse is being sold to UBS at a 60 per cent discount on March 17 prices, Kotak Mahindra Bank CEO Uday Kotak said it is a signal for all bankers and stakeholders, when the risk-return matrix is overtaken by an obsession with size.
“Credit Suisse sold to UBS for $3 bn. 60 per cent discount to stock value at Friday closing. ~600 bn $ balance sheet sold for $3 bn equity value. $17 bn of AT1 bonds written off. A signal for all bankers and stakeholders, when risk return matrix is overtaken by obsession with size," the veteran banker said in a tweet on Monday.
Credit Suisse sold to UBS for 3 bn $. 60%discount to stock value at Friday closing. ~600 bn $ balance sheet sold for 3 bn $ equity value. 17 bn $ of AT1 bonds written off. A signal for all bankers and stakeholders, when risk return matrix is overtaken by obsession with size.— Uday Kotak (@udaykotak) March 20, 2023
Banking giant UBS is buying troubled rival Credit Suisse for almost $3.25 billion, in a deal orchestrated by regulators in an effort to avoid further market-shaking turmoil in the global banking system.
Swiss authorities pushed for UBS to take over its smaller rival after a plan for Credit Suisse to borrow up to 50 billion francs (USD 54 billion) failed to reassure investors and the bank’s customers. Shares of Credit Suisse and other banks plunged this week after the failure of two banks in the US sparked concerns about other potentially shaky institutions in the global financial system.
Credit Suisse is among the 30 financial institutions known as globally systemically important banks, and authorities worried about the fallout if it were to fail.
Credit Suisse Chairman Axel Lehmann called the sale a clear turning point. It is a historic, sad and very challenging day for Credit Suisse, for Switzerland and for the global financial markets, Lehmann said, adding that the focus is now on the future and in particular on the 50,000 Credit Suisse employees, 17,000 of whom are in Switzerland.
Following news of the Swiss deal, the world’s central banks announced coordinated financial moves to stabilise banks in the coming week. This includes daily access to a lending facility for banks looking to borrow US dollars if they need them, a practice which widely used during the 2008 financial crisis. Three months after Lehman Brothers collapsed in September of 2008, such swap lines had been tapped for USD 580 billion. Added swap lines were also rolled out during market turmoil in the early stages of the COVID-19 pandemic in March of 2020.
Two US banks have collapsed, Silicon Valley Bank and Signature Bank. Credit Suisse and First Republic Bank are also struggling and are securing support to survive.
On the impact of the bank collapses in the US on India, analysts have said amid all the “gloom and doom" in global banks, Indian lenders are distinguished with “hardly any exposure directly or indirectly to SVB", Macquarie analyst Suresh Ganapathy said recently. He added that the sector has “a domestic deposit funded system with investments in Indian government securities".
Jefferies Financial Group has also echoed the Macquarie view. It said SVB Financial Group poses low potential risk to India as a subsidiary was sold in 2015 and a rebranded version of that company has good credit rating and stable liquidity.
(With Inputs From Agencies)
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