UBS Group (NYSE:UBS) stock fell 4% overnight on its forced marriage with Credit Suisse (NYSE:CS). The Swiss government engineered the deal in hopes of ending the latest banking crisis.
The merger is worth $3.2 billion. However, the price paid for CS equity is less than losses being written off on the bank’s convertible bonds. The real cost of the deal to UBS is negative $500 million.
UBS Stock: The Fight for Stability
Switzerland intervened directly in the crisis over the weekend, changing local law to keep the bank, with its huge wealth management business, in Swiss hands.
Saudi Arabia National Bank, Credit Suisse’s largest shareholder before the deal, took a loss of about $1 billion. The Saudis paid $1.5 billion for 10% of Credit Suisse last year.
Unlike the collapse of SVB Financial’s (NASDAQ:SIVB) Silicon Valley Bank, which evolved very quickly, Credit Suisse has been in trouble for years.
Credit Suisse paid $2.6 billion to settle charges of tax evasion on behalf of clients in 2014. A CEO resigned in 2020 after two spy scandals. It was hit by the collapse of hedge fund Archegos Capital in 2021. According to Credit Suisse Chairman Axel Lehmann, the U.S. banking crisis was the last straw.
UBS will now be a bank with over $5 trillion in assets. After the announcement of the deal, Goldman Sachs reversed its view on European banks to overweight. It cut its recommendation to underweight just a few days ago. Now, many are expecting layoffs as UBS absorbs Credit Suisse.
What Happens Next?
The end of the Credit Suisse story does not directly end the U.S. crisis, where fear is causing depositors to pull money from smaller banks in favor of “too big to fail” institutions.
Western bankers and governments hope the Swiss move brings bargain hunters back into bank stocks, ending the current crisis. Whether that happens remains an open question.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.