UBS Gains 5% After Buying Credit Suisse

Key Insights

• UBS agreed to buy Credit Suisse for $3.23 billion. 
• Interestingly, some bondholders will be wiped out while shareholders get some money. 
• UBS stock gained 5% as traders bet that buying Credit Suisse at a discount was a decent idea. 

Switzerland Moves To Save Its Banking Industry

UBS stock gained 5% after Switzerland’s leading bank agreed to acquire its rival Credit Suisse for $3.23 billion. Shares of Credit Suisse collapsed by 50%.

Swiss regulators have also demanded that Credit Suisse writes down $17.24 billion of its Additional Tier 1 debt. It is unusual to see that some bondholders are getting wiped out while shareholders get money. Typically, bondholders’ claims are satisfied before shareholders’ claims.

According to recent reports, UBS and Credit Swiss got access to as much as $280 billion in support from Switzerland. The country, which is one of the world’s main financial centers, is trying to save its banking industry from collapse.

UBS was reluctant to purchase the troubled bank due to its problems. However, it looks that regulators left no chance for other scenarios.

Is The Banking Crisis Over?

Regulators have provided strong support to banks to limit potential contagion. The current crisis was caused by aggressive rate hikes from the world’s leading central banks. The yield of government debt declined as the prices of these bonds fell, hurting banks’ balance sheets.

The key question is whether regulators will be able to contain the crisis by throwing money at any bank that has problems. Today, riskier assets are moving higher as traders bet that regulators have enough firepower to deal with the problems. However, the story will likely remain one of the key drivers for markets in the upcoming months.

For a look at all of today’s economic events, check out our economic calendar.