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Bank giant UBS acquires smaller rival Credit Suisse to avoid market turmoil

Swiss President Alain Berset announced Sunday night that banking giant UBS is buying smaller rival Credit Suisse in a bid to avoid further market-shaking turmoil in global banking.

Berset, who did not specify the value of the deal, described the announcement as “widespread for the stability of international finance. An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”

Credit Suisse has been rated by the Financial Stability Board, an international body that monitors the global financial system, as one of the global banks of systemic importance. This means that regulators believe its disorderly failure will cause ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.

Sunday’s press conference comes on the heels of a meltdown Two major US banks Last week spurred that on Feverish and wide response from US government To prevent further bank panics. However, global financial markets have been on alert since Credit Suisse’s share price started to fall this week.

He is already 167 years old Credit Suisse Received 50 billion dollars (54 million Swiss francs) a loan from the Swiss National Bank, which briefly caused the bank’s share price to rise. However, this step does not appear to be enough to stem the influx of deposits, according to news reports.

Still, many Credit Suisse The problems are unique And don’t overlap with the vulnerabilities that brought down Silicon Valley Bank and Signature Bank, whose failures led to it Great rescue effort by the Federal Deposit Insurance Corporation Federal Reserve. As a result, its collapse does not necessarily signal the onset of a financial crisis similar to what occurred in 2008.

The deal capped a very volatile week for Credit Suisse, Most notably on Wednesday When its shares plunged to a record low after the largest investor, the National Bank of Saudi Arabia, said it would not invest any more money in the bank to avoid regulations that would kick in if its stake rose by about 10%.

On Friday, shares fell 8% to close at 1.86 francs ($2) on the Swiss Stock Exchange. The stock experienced a long downward spiral: it traded at more than 80 francs in 2007.

Its current troubles began after Credit Suisse reported on Tuesday that directors had identified “material weaknesses” in the bank’s internal controls over financial reporting up to the end of last year. That raised fears that Credit Suisse could be the next domino to fall.

While Credit Suisse is smaller than its Swiss rival UBS, it still wields significant leverage, with $1.4 trillion in assets under management. The company has important commercial offices all over the world, provides its services to the rich and wealthy through its wealth management business, and is a key advisor to global companies in mergers and acquisitions. Notably, Credit Suisse did not need government aid in 2008 during the financial crisis, while UBS did.

Despite the banking turmoil, the European Central Bank On Thursday, it approved a significant increase of half a percentage point He raised interest rates in an attempt to rein in high inflation, saying that the banking sector in Europe is “resilient”, and enjoys strong financing.

European Central Bank President Christine Lagarde said banks were “in a very different position than in 2008” during the financial crisis, in part because of tougher government regulation.

The Swiss bank has been pressing for funds from investors and has put forward a new strategy to overcome a host of problems, including Bad bets on hedge fundsAppointment changes in its top management and a espionage scandal involving UPS.

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