According to an Entrepreneurng report, the Bank of England will not object to UBS acquiring neighboring Swiss firm Credit Suisse as soon as this weekend to avert a crisis that could have shades of the 2008 global banking crash.
Following the failure of a $54 billion loan from the Swiss central bank to Credit Suisse to stop the sharp decline of its share price, UBS has been in talks to acquire all or part of its compatriot.
The crisis engulfing Credit Suisse has fueled concern about contagion in the global banking system, especially in light of last week’s collapse of Silicon Valley Bank, whose UK subsidiary had to be taken over by HSBC for the nominal sum of £1.
The Bank of England has given its approval for such a deal, with UBS, Credit Suisse, and the government reportedly eager to announce a takeover as early as Sunday afternoon.
Only 30 lenders are considered to be “systemically significant” in the global banking system, according to the Financial Stability Board, including Credit Suisse, which has 5,000 employees in the UK.
But, as it attempts to recover from a protracted string of scandals, regulatory issues, and poor financial bets, its stock market value has plummeted to just $8.6 billion (£7 billion), down 86% since February 2021.
The bank admitted guilt in 2014 of facilitating tax evasion by American clients, which resulted in a $2.6 billion penalty from the US government and New York banking regulators.
After two corporate espionage scandals involving senior employees in 2020, Tidjane Thiam, the then-CEO of Credit Suisse, resigned.
A year later, the bank lost $5.5 billion due to the failure of US hedge fund Archegos Capital. based on a leak, that fraudsters, criminals, and dishonest politicians had deposited £80 billion with the Zürich-based lender, the storm of the bad press got worse.
After rumors about the bank’s financial stability, customers started withdrawing billions of pounds from it last year, resulting in the bank’s largest full-year loss since the 2008 banking crisis.
The struggles of Credit Suisse have fueled worries that the worldwide banking system could once again succumb to contagion, with implications for the larger global economy, especially in light of Silicon Valley Bank’s demise earlier this month.
The economist Nouriel Roubini, known as Dr. Doom after being credited with predicting the 2008 financial crisis, said that any potential failure by Credit Suisse could prove to be a “Lehman moment”, a reference to the collapse of Lehman Brothers in September 2008, widely seen as the proximate cause of the crash.
Government and regulatory officials are involved in discussions in Switzerland, and one proposal on the table is for a state-backed guarantee to shield UBS from the impact of losses on Credit Suisse’s balance sheet, so easing a merger.
Source: The Guardian
