Investors and employees at Swiss bank Credit Suisse are growing nervous following the news that the financial institution has collapsed.
On Monday afternoon Australian time (Sunday local time), investment bank Credit Suisse announced that it was going to be absorbed by the country’s largest bank and its main rival, UBS, after discussions with the Swiss government and regulators.
Credit Suisse’s woes had been in the spotlight in recent days amid fears of a banking crisis, including a $2 billion loss in the last quarter, after having to sell bonds back at a loss because of market conditions.
It comes just a week after three US banks collapsed in quick succession, Silverbank Capital, Silicon Valley Bank and Signature Bank, a day apart each time
UBS will acquire Credit Suisse for $3.25 billion. That’s about 60 per cent less than the bank was worth when markets closed on Friday, prior to its shock merger announcement, according to CNN Business.
Under the emergency deal, holders of $US17 billion ($25 billion) worth of Credit Suisse bonds – so-called additional tier one (AT1) bonds, a riskier class of bank debt – were written down to zero.
Shares plunged off the back of the news, with Credit Suisse down about 60 per cent at its peak on Monday, while UBS dropped by five per cent on the stock market. At time of writing, Credit Suisse was down 55 per cent while UBS took a 1.26 per cent hit.
The Australian share market plummeted sharply on Monday, with the ASX200 index closing down 1.4 per cent at 6898.50 points, a four-month low.
A frequently asked question guide for Credit Suisse staff has also highlighted concerns employees are facing, including the possibilities of lay-offs, and not receiving their shares, promotions or bonuses now that the merger is underway. More than 45,000 people work at the bank with offices across the world, including in Sydney.
Credit Suisse, previously the second largest bank in Switzerland and the 18th largest investment bank in the world, has sent mixed messages to its panicked staff.
They’ve warned that lay-offs could be a possibility, especially as the buyer, UBS, has already indicated it wants to cut costs by more than $US8 billion ($11.9 billion) come 2027.
The deal is expected to be completed by the end of 2023, which means staff won’t have clarity until then.
Questions listed among the FAQ on the company’s website include “Do I still have a job?”, “Will my salary and any bonus still get paid?”, I am a contract worker with Credit Suisse. Will you honour my contract to its end-date?”, “Will I receive a bonus for my hard work through 2023?” and “What happens to my Credit Suisse vested stock?”, among others.
So far, Credit Suisse says all previous agreements with staff and contractors will be honoured, emphasising all is “business as usual”.
Ultimately, staff were urged to go back to work.
But in a bizarre twist, workers have been reminded that UBS still remains their competitor and not to give away company secrets and strategies, in case the deal doesn’t go ahead.
According to Bloomberg, the CEO of Credit Suisse, Ralph Hamers, sent a company-wide email trying to lift morale but also remind staff of their duties.
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“Credit Suisse is still our competitor,” Mr Hamers reportedly wrote in a note to staff.
Meanwhile, the company’s chairman Axel Lehmann tried to rally the troops as they had to head into the office on Monday.
“We know that many of you will have been following the intense media coverage over the past 48 hours on the future of Credit Suisse and appreciate the enormous uncertainty and stress that this has caused,” he wrote.“
Please note that there is no immediate impact on our clients and on our day-to-day working operations.
“Our branches and global offices will remain open, and all colleagues are expected to and should continue to come to work.”
Swiss Finance Minister Karin Keller-Sutter said that bankruptcy for Credit Suisse could have caused “irreparable economic turmoil” and “huge collateral damage” for the Swiss financial market, not to mention the “risk of contagion” for other banks, including UBS itself.
The takeover has “laid the foundation for greater stability both in Switzerland and internationally”, she said, insisting it was “a commercial solution and not a bailout”.
The deal was warmly received internationally, with European Central Bank chief Christine Lagarde welcoming the “swift action”. She said the decisions taken in Bern “are instrumental for restoring orderly market conditions and ensuring financial stability”.
US Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement, “We welcome the announcements by the Swiss authorities today to support financial stability.”
The sentiment was echoed by British Chancellor of the Exchequer Jeremy Hunt.
Meanwhile, the US Federal Reserve and the central banks of Canada, Britain, Japan, the EU and Switzerland announced on Monday they would launch a co-ordinated effort to improve banks’ access to liquidity, hoping to calm worries rattling the global banking sector.
– With Frank Chung