On Sunday March 19, the 167-year history of banking giant Credit Suisse came to an end with the acquisition of the largest Swiss bank, UBS. Under pressure from the Swiss government, UBS acquired its ailing competitor for 3 billion Swiss francs (about $3.25 billion), less than half the $8 billion Credit Suisse was worth in the market as of Friday, March 17, two days before the acquisition.
A day later, on March 20, Credit Suisse shares plunged more than 60% on the European stock market, and UBS shares fell 9%.
To cover the losses that UBS may suffer in the operation, the Swiss government will contribute USD 10,000 million. The Swiss central bank will also make a $108 billion bankruptcy loan available to banks.
The Swiss publication Neue Zürcher Zeitung qualified the operation “biggest economic earthquake in Switzerland since the bailout of UBS in 2008 and the fall of Swissair in 2001”. The rescue must avoid a crisis that spreads to other banks, something similar to what happened 15 years ago after the bankruptcy of Lehman Brothers in the United States. The Credit Suisse bailout was “necessary” not only for Switzerland, but for the stability of the entire global financial system, argument the President of the Swiss Confederation, Alain Berset.
Multi-million dollar merger in a weekend
The agreement aroused mixed reactions in the Swiss political arena. The Swiss Free Democratic Party (FDP) praisestating that the takeover was necessary to prevent serious damage to Switzerland as the financial and economic center of the world.
The criticism came from the co-chairman of the Social Democratic Party of Switzerland, Cédric Wermuth, who tweeted that nothing had changed since the 2008 financial crisis. “The entire financial system is sick and it’s absurd,” he said, adding that the state must step in again and save it.
Marcel Fratzscher, president of the German Institute for Economic Research, believes the takeover could give rise to a giant bank, leading to general instability in the event of a notional collapse.
In a interview With Die Tageszeitung, the German economist stated that the current situation is not nearly as worrisome as it was before the world financial crisis of 2008. “Today it is the strong rises in interest rates by central banks that have taken by surprise to many financial institutions and have caused massive losses.”
In other words, the problem today “is not systemic interdependence between financial institutions or inadequate provision in terms of liquidity and capital, but unusually aggressive monetary policy.”
Regulatory pressure likely to increase
“This acquisition of Credit Suisse by UBS has come as a profound shock to many,” Olga Feldmeier, co-founder of Swiss investment platform Smart Valor, told Cointelegraph. Until 2014, she was CEO and head of sales at UBS’s wealth management business.
“It had been known for some time that things were not going very well at the bank. But who would have thought that the bank, once worth $80 billion, would be the subject of a $3 billion acquisition by its archrival UBS?”. According to Feldmeier, it’s not just the 50,000 employees who are in shock. Lenders have been hit even harder, especially those with a special type of high-quality bond, called additional Tier 1 capital.
But when asked what the alternative would be, Feldmeier agreed that without this takeover, the consequences would be catastrophic. “After all, where is one safe if one of the top 30 systemically important – and Swiss – banks fails? In a systemic bank run, neither the European Central Bank nor the Fed could help.”
Mauro Casellini, a board member of the CCA Trustless Technologies Association and, until January 2023, CEO of Bitcoin Suisse Liechtenstein and head of Bitcoin Suisse Europe, shares a similar view.
As he told Cointelegraph, it is right that the Swiss government and regulators have moved quickly to find a solution with the least possible negative impact on the market.
“While there had been indications for some time that things were not going well at Credit Suisse, it was hard for outsiders to see how critical the situation was. It is too early to say whether this was the right solution, but the size of this new ‘superbank’ is impressive and regulatory pressure is likely to increase,” Casellini said.
The good and bad
The banking crisis has brought some good and some bad for cryptocurrencies. Despite negative macroeconomic developments, the cryptocurrency market performed well when news broke that UBS would take over Credit Suisse. Bitcoin (BTC) led the crypto market rally with a 15.5% gain (reaching $28,671 on March 22). Ether (ETH) gained 3.9%. Driven by BTC price rally, shares of publicly traded Bitcoin mining companies have gone up to 120% since the beginning of the year.
According to Feldmeier, this is a positive phenomenon for cryptocurrency exchanges, both large and small. “More trading, more sales, some long-missed tailwind wouldn’t hurt our industry,” Feldmeier said. “This also increases the certainty that the Bitcoin cycle will hold what it promises, i.e. the next bull run around the Bitcoin halving in March 2024.”
The loss of customers and investors in traditional financial institutions could positively affect the cryptocurrency market as investors turn to alternative assets such as cryptocurrencies.
However, the Credit Suisse acquisition and the fact that the banking industry faces many different risks and challenges around the world also has a downside. Banks remain important partners for cryptocurrencies. If banks do not do well, they will be even less willing to work with companies that handle cryptocurrency or increase fees, which will not make life any easier for the crypto industry.
According to Casellini, the recent closures of trust banks such as Silvergate and Signature, followed by the bankruptcy of Credit Suisse, have created “significant risks for the crypto market.” According to the expert, it was necessary to “address issues such as regulation, security and transparency to build confidence among investors and ensure the viability of the market in the long term. Regulation will help our industry in the long term to build a successful alternative and more decentralized to the traditional financial system.”
Casellini also expects to see more difficulties and risks ahead due to the changing interest rate landscape and additional requirements banks must meet.
“It will be interesting to see how governments and especially national banks react, and whether they will bail out struggling banks or let them fail.”
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.