Bank shares fell today, Monday, as the initial calm following a historic deal backed by Swiss authorities to rescue the ailing "Credit Suisse" faded. Is the banking crisis worsening? According to the deal, the Swiss financial regulatory authority decided to value $17 billion in additional tier-one bonds issued by "Credit Suisse" at zero, which angered some bondholders who believed they would receive greater protection than shareholders in the acquisition deal announced yesterday, Sunday. Concerns about what this move might mean for additional tier-one bonds issued by other banks added to ongoing worries about a range of risks, including the transmission of the crisis through the banking sector, the fragility of local banks in the United States, and moral hazards.
Mike O'Rourke, chief market strategy analyst at Jones Trading, noted that it should be clear that this crisis, following more than a week of banking panic and intervention by authorities, is not on the path to resolution. On the contrary, it has expanded globally. He added, "The news of UBS's acquisition of Credit Suisse is likely to put Credit Suisse's problems under the microscope by transferring them to UBS."
The Swiss central bank had thrown a lifeline to the troubled "Credit Suisse" worth $54 billion to support liquidity after its shares and bonds plummeted, raising questions as to whether this was the beginning of a new global crisis or just another specific case. UBS agreed to acquire its smaller rival and will pay 3 billion Swiss francs ($3.23 billion) for "Credit Suisse," which was founded 167 years ago, while absorbing losses of up to $5.4 billion. The European Central Bank announced on Sunday that rescuing the Swiss Credit Suisse was necessary to restore calm in the financial markets and that it remains ready to support Eurozone banks with loans if necessary.
ECB President Christine Lagarde stated in a statement, "I welcome the swift measures and decisions taken by the Swiss authorities. They were necessary to restore orderly market conditions and ensure financial stability."
## The Story of "Credit Suisse"
Founded in 1856, Swiss bank "Credit Suisse" has faced a series of scandals in recent years, including money laundering charges and other issues. The bank lost money in 2021 and 2022, which witnessed its worst banking crisis since 2008, and it received warnings that it might not turn a profit until 2024.
Shares of "Credit Suisse" were heavily impacted before this week, with their value decreasing by about two-thirds last year as clients withdrew funds, including 110 billion Swiss francs, in the last three months of 2022. Credit Suisse confirmed in February that clients withdrew 110 billion Swiss francs ($119 billion) in the fourth quarter, while the bank suffered its largest annual loss since the financial crisis of 7.29 billion Swiss francs.
The bank is classified among the largest wealth managers in the world and is one of the 30 globally significant banks whose failure could cause ripples throughout the entire financial system.
