What you need to know about the merger of Credit Suisse and UBS

The last few weeks have once again been very turbulent. Various reports have thrown the financial markets into further turmoil. As a result, uncertainty among shareholders continues to grow. One piece of news, in particular, has shaped developments: the takeover of the troubled Swiss bank Credit Suisse (CS) by UBS.

How did Credit Suisse get into trouble?

The publication of Credit Suisse’s last annual report at the beginning of March triggered a domino effect: Depositors and other financiers lost confidence in the bank. More and more big clients withdrew their money from CS. The capital outflow had risen to more than CHF 110 billion and the bank suffered its biggest annual loss since the banking and financial crisis in 2007 and 2008. CS share prices fell by 15% and top shareholder Saudi National Bank, publicly ruled out any further supporting financial investment.

Shortly after, the Swiss National Bank (SNB) agreed to lend up to CHF 50 billion to CS to ensure liquidity. At the same time, CS announced it will buy back roughly CHF 3 billion worth of debt. Despite these efforts, rumours of a UBS takeover started to circulate on Friday 17 March 2023.

UBS takes over Credit Suisse

Credit Suisse and UBS signed a merger agreement this Sunday, 19 March 2023. Following a string of scandals over many years, several top management changes, multi-billion dollar losses and a strategy that has long been deemed “uninspiring”, the 167-year-old Swiss lender has been bought by rival Bank UBS in a historic takeover.

The Swiss Federal Council called the merger essential to “safeguarding global financial market stability” and “welcomes and supports UBS takeover of Credit Suisse.”

The federal government is also providing a guarantee for additional liquidity assistance from the Swiss National Bank to Credit Suisse. This support will help ensure the liquidity of CS and the successful implementation of the takeover to secure overall financial stability and protect the Swiss economy.

What about the collapse of Silicon Valley Bank?

The merger follows the collapse of Silicon Valley Bank (SVB) roughly two weeks ago – the largest bank failure in the United States since the global financial crisis. 

Although the overall picture looks similar, the actual situation was quite different. SVB collapsed due to a large number of clients wanting to withdraw money (“bank-run”) and held-to-maturity bonds. Credit Suisse’s liquidity concerns however were not related to held-to-maturity bonds, and there was not a comparably extreme bank run.

SVB’s vulnerability was the result of a bank run and a large number of deposits invested in held-to-maturity securities. Essentially, the bank’s poor risk management resulted in a significant amount of short-term deposits being invested in long-term government bonds. So, when interest rates rose, the value of the bonds fell. So eventually, the bank still had to sell the bonds (at a loss), in order to be able to pay out client money.

There are also ongoing problems in the U.S. banking sector as bank stocks remain under pressure. This is due to the potential risk of contagion faced by banks that have deposits or credit business with Silicon Valley Bank, as well as overall insecurity about the safety of deposits.

What does this mean for your Inyova portfolio? 

The merger of Credit Suisse and UBS will have no direct impact on your Inyova portfolio. 

Your money is invested with well-positioned banks that have solid risk and liquidity management to overcome the current turbulences in the bond market without facing liquidity issues. 

Neither Inyova nor our transaction banks have any ties to or business associations with the banks affected by the current crisis. 

Most importantly, your money is safely deposited at our transaction banks, which are heavily regulated by FINMA/BaFin, including strong restrictions with regard to depositor protection and statutory deposit insurance. 

What about the effect on the stock market?

Stock prices of financial institutions plunged over the past few weeks due to recent events. However, other sectors like IT and renewable energy have continued to perform relatively well given the current macroeconomic environment. In fact, the NASDAQ index, which reflects 100 major tech stocks in the US, is up by almost 6% in the last week. 

Your Inyova portfolio is well diversified, with stocks and bonds covering numerous sectors, regions, currencies and countries. It includes large, medium and smaller companies. It’s designed for the long term and to withstand market turbulences like the ones we’re currently facing.

We have said it before and we will say it again – historically after every downturn, there was an upward trend and the best way to benefit from this upward movement was to stay invested. Please note: The past performance of financial markets and instruments is never an indicator of future performance.

Do you have more questions? Please reach out to our Customer Success team. You can email us at [email protected] or call 044 271 50 00. We’re here to help!