BERNE, Switzerland (AP) -- Banking giant UBS is buying lower-in-problem rival Credit Suisse to avoid further fermentation in global banks, Swiss President Alain Berset announced Sunday night.
Swiss Chairman Alain Berset, who did not specify the value of the deal, described the announcement as “a large-scale announcement of the stability of cross-border finance. The runaway collapse of Credit Suisse will lead to catastrophic consequences for the country and the transnational financial system.”
Credit Suisse is rated by the Financial Stability Board, a transnational body that monitors the global financial system, as one of the global banks of encyclopedic systemic importance. This means that observers believe its runaway failure will cause ripples throughout the financial system not unlike the 15-fold collapse of Lehman Sisters.
Sunday's press conference comes on the heels of two US collapses. Banks last week that provoked a frantic and widespread response from the United States. Government to help any banks further. However, global financial orders are still in a tailspin since Credit Suisse's share price started falling this week.
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The 167-year-old Credit Suisse previously entered into a $50 billion (CHF54 million) loan from the Swiss National Bank, which caused the bank's share prices to skyrocket. However, this step does not appear to be enough to stem the exodus of deposits, according to news reports.
However, many of Credit Suisse's woes are unique and out of step with the sins that brought down Silicon Valley's bank and hand bank, whose failures led to a major completion problem by the FDIC and the Federal Reserve. As a result, its collapse does not necessarily mean the launch of a financial party similar to what happened in 2008.
The deal capped a largely unpredictable week for Credit Suisse, especially on Wednesday when its shares plunged to a record low after the largest investor, Saudi National Bank, said no wealthy person would invest in the bank to avoid defaulting on regulations. He would protest if his stake rose by about 10 percent.
On Friday, shares fell 8 percent to close at 1.86 francs ($2) on the Swiss stock exchange. The stock experienced a long downward trend, trading at more than 80 francs in 2007.
Its current troubles began after Credit Suisse reported on Tuesday that directors had linked "material sins" in the bank's internal controls over financial reporting to the end of last time. That raised fears that Credit Suisse could be the next domino to collapse.
While below Swiss rival UBS, Credit Suisse still has significant leverage, with $1.4 trillion in play. The firm has important business divisions around the world, caters to the wealthy and obese with its wealth management business, and is a leading advisor to global firms in combinations and joins. In particular, Credit Suisse did not need government support in 2008 during the fiscal maximum period, while UBS did.
Despite the banking ferment, the European Central Bank on Thursday approved a large, partial one-point increase in interest rates in a bid to check the rising effect, saying Europe's banking sector is "resilient", and well-funded.
European Central Bank President Christine Lagarde said banks were "in a very different position than in 2008" during the fiscal maximum period, due to tougher government regulation.
The Swiss bank has been pushing to bring together wealthy investors and roll out a new strategy to get around a host of problems, including bad bets on barricade financings, frequent jerks in its major operations, and a espionage charge involving UBS.
In the end, I think that most investors keep their money in exchange for buying gold, and it is expected that the price of gold will rise after the bankruptcy of some international banks. In order to escape fear, investors will resort to collecting gold.