UBS Acquiring Credit Suisse Yields a Mixed Bag for Crypto

Many parties perceive the conclusion of the Credit Suisse takeover by UBS as a timely intervention to save the global financial system from a calamitous banking crisis witnessed in 2008.
Pressure by Swiss Government to Expedite Credit Suisse Takeover
Sunday, March 19, marked the end of the 167-year Credit Suisse journey when the largest Swiss lender UBS acquired its assets. The acquisition leveraged the pressure imposed by the Swiss government for UBS to salvage the ailing competitor for $3.25 billion.
The takeover involved a discounted transaction as Credit Suisse commanded an $8 billion market value 48 hours earlier on March 17. Twenty-four hours later, following the acquisition on March 19, Credit Suisse shares plummeted by over 60% while UBS slid 9%.
The Swiss government projected the decline by assuring UBS a $10 billion injection to resolve losses it would incur. Further, the Swiss central bank sweetened the March 19 takeover by declaring it would facilitate $108 billion as a bankruptcy loan.
UBS Takeover of Arch-Rival Credit Suisse Considered an Economic Earthquake
A publication by the Neue Zürcher Zeitung portrayed the takeover as the modern economic earthquake since the 2001 Swissair grounding and the 2008 UBS rescue.
The report emphasized that rescue should avert a crisis that would spread to other lenders, similar to the 2008 financial crisis following the Lehman Brothers bankruptcy. The publication echoed the confession by Swiss Confederation President Alain Berset that UBS acquiring Credit Suisse is a critical intervention for Switzerland and the global financial system.
The billion-dollar deal draws mixed reactions across the Swiss economic and political arena. The Free Democratic Party of Switzerland (FDP) lauded the move necessary to avert a calamitous outcome for the country’s efforts to become a regional financial and economic hub.
In his tweet, the co-leader of the Social Democratic Party of Switzerland, Cédric Wermuth, regretted that the country and the globe is yet to realize changes in the financial system since the 2008 crisis. He considered the struggles confronted by Credit Suisse, signaling the need for government intervention to save the financial system.
Speaking about the UBS takeover of Credit Suisse, the German Institute for Economic Research leader Marcel Fratzscher expressed concern about the emergence of a giant bank. The entity would leave the financial sector vulnerable to collapse in the event of instability.
Aggressive Monetary Policy Exposing the Fragility of Banks
A subsequent interview featuring Die Tageszeitung saw the German economist downplay the significance of the current situation as miles away from replicating the 2008 financial crisis. Instead, he observed that the situation resulted from a hawkish stance exercised by central banks in raising the interest rates to rein the inflationary pressure.
Tageszeitung considers that the sustained spike in interest rates is surprising multiple financial institutions with colossal losses. The economist dismissed the existence of systemic interdependence or inadequate liquidity provisions. Instead, he lamented central banks’ substitution of dovish policy for aggressive monetary policies.
Credit Suisse’s takeover by rival lender UBS triggered shockwaves, as observed by Olga Feldmeier, who co-founded Swiss investment firm Smart Valor. The former executive at UBS wealth management business indicated that saving the bank in a $3 billion takeover surprised the entire globe.
Feldmeier wondered how surprising it was to acquire a once $80 billion-value bank in a $3 billion deal by an arch-rival UBS. The shock is widespread beyond the bank’s 50000 workforce, particularly with lenders with Additional Tier 1 Capital vulnerable to similar takeovers.
Feldmeier considers the swift action by the Swiss regulators and government necessary for averting a catastrophic consequence. The takeover prevented the Swiss economy from witnessing a systemic bank run that neither the US Fed nor EU Central Bank would resolve.
Impact of Banking Crisis to the Crypto Industry
Mauro Casellini, a former chief executive at Bitcoin Suisse Liechtenstein, lauded the quick action as portraying the least negative impact. Nonetheless, the emergence of a giant bank would invite increased regulatory pressure to avoid the super bank bug.
The banking crisis also witnessed following the collapse of Silvergate Capital Corp, Signature and Silicon Valley banks in the US triggered a bull that left bitcoin rallying 15% to realize $28600 on March 22. The takeover of Credit Suisse would similarly trigger a 4$ Ether (ETH) rally. The share prices of crypto mining companies would surge by 120% since January 1 2023.
While the banking crisis is prompting investors to safeguard their investments from losses by embracing cryptos as alternative assets, digital asset operators are yet to garner autonomy from conventional banks.
As critical partners, struggling banks could show reluctance to partner with crypto operators. Alternatively, they could impose higher fees to the disadvantage of crypto firms.
The closure of US banks that culminated in the acquisition of Silicon Valley Bridge Bank in a $55.5 billion deal by First Citizen and a $3.25 takeover of Credit Suisse by UBS challenges the governments to reconsider their approaches to the financial sector. Whether the governments would let the lenders fail or intervene to save the struggling banks remains uncertain.

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