UBS acquires Credit Suisse for $3.23 billion in government-brokered sale, ending the Swiss bank’s 166-year history as a stalwart of the global financial system. The sale was prompted after massive trading losses along with other operational missteps, the latest being the biggest casualty of the financial turmoil triggered by central banks as they tighten monetary policy to rein in inflation. Before the global financial crisis, Credit Suisse had over $1tn in assets; however, years of decay has now dwindled Credit Suisse’s assets to approximately $580bn, roughly half of UBS’s. Bob Shennan, CEO of UBS, has announced that he plans to take a close look at Credit Suisse’s operations and then weed out any redundancies within the acquired bank to create a streamlined organization that is better situated for future growth.
The sale marks the end of an era for Credit Suisse, which once helped to position Switzerland as a globally recognised linchpin of international finance, competing against Wall Street titans for decades. However, a steady drumbeat of scandals, legal problems and management upheaval eroded investor confidence over time. After the collapse of Silicon Valley Bank on 10 days ago, long-suffering Credit Suisse quickly became a focal point of concern, with jitters rising to the surface in the Swiss financial services industry. The sale to UBS avoids a disorderly collapse, despite concerns about further contagion.
For Switzerland, the sale could have significant implications. The country’s stability and wealth heavily rely on its finance industry, with home accounting for 243 banking groups and 24 branches of foreign banks. The combined assets of UBS and Credit Suisse are approximately double the size of Switzerland’s gross domestic product, making the looming demise of a national symbol, with Sunday newspapers from tabloids to broadsheets, filled with the grim news.
Credit Suisse’s rise and eventual downfall started in the summer of 1990, with the acquisition of First Boston, a partner of the American bank that had embraced high-yield debt markets during the 1980s and lent billions of dollars to fund risky buyout transactions. The once-lucrative industry, which had subsequently imploded, included a $457m loan for the leveraged buyout of Ohio Mattress, or “the burning bed,” which became infamous in Wall Street. Credit Suisse embraced the same kinds of risky businesses in its new acquisition, such as leveraged finance and mortgage-bond trading, leading to its downfall.
Leadership turmoil, such as frequent management changes and a revolving door of senior management, also caused strategic turmoil at the top, adding further pressure on the rank and file to generate returns. Credit Suisse faced operational missteps in recent times, including a fraud perpetrated by a private banker, and a long-festering feud involving leadership and workplace bullying, which only added fuel to the fire.
Despite the challenges, Credit Suisse had tried to rally in recent times, with restructuring plans by the new leadership duo of chairman Axel Lehmann and chief executive Ulrich Koerner, who culled jobs and raised $4bn in new capital. Still, the end of cheap money, the global economy’s turmoil, and investor confidence proved too much for a bank that had never truly learned its lesson from the global financial crisis.
عبدالرحمان زمین پیما
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آرمان جعفری
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