Credit Suisse Shares Plunge 60% And European Bank Stocks Slide After UBS Rescue

European banks bank stocks slid Monday, reinvigorating concerns about the financial system as already-turbulent markets respond to Swiss banking giant UBS purchasing stricken rival Credit Suisse in an emergency deal brokered after the failure of two U.S. banks.

UBS announced plans to buy its beleaguered Swiss rival Credit Suisse on Sunday. The $3.2 billion deal, partly an effort to calm roiling financial markets, is a huge discount given Credit Suisse's market valuation and heralds the creation of a new Swiss banking behemoth and the start of a new era for lending in Switzerland. It also marks the demise of a once stalwart member of the global financial system that for years was considered too big and too important to fail. Years of unrest following a string of controversies -- including charges of money laundering, sanctions breaches, corruption, fraud and tax evasion, links with collapsed firms Archegos and Greensill Capital and revelations it had spied on its own staff -- eroded that position. Its position grew terminal last week after its delayed annual report acknowledged "material weaknesses" in financial reporting and sent shares into freefall.

Credit Suisse's downfall comes at a poor time for global financial markets, which are already reeling from the recent failure of two U.S. institutions: Silicon Valley Bank (SVB) and Signature. Credit Suisse bondholders are likely to be angry following the deal, as their investments are likely to be wiped out, a move that could exacerbate market worries. Though the troubled Swiss bank's problems long predate the collapse of the two institutions, the loss of such a historic institution will also undoubtedly intensify concerns. In premarket trading early Monday morning, Wells Fargo and JPMorgan Chase were down more than 1% and Goldman Sachs, Citigroup and Bank of America between 0.4% and 0.6%. From market close on Friday, all were down between 3% and 4% on Monday morning.

Asian markets also responded negatively to the news of UBS' acquisition. Hong Kong's Hang Seng index fell more than 2.6% on Monday. Japan's Nikkei 225 was also down 1.4% and the Shanghai Composite Index down 0.48%.

UBS Buying Rival Credit Suisse In $3.2 Billion Rescue Deal (Forbes)