As banking turmoil spreads around the world, over the weekend Switzerland’s largest bank agreed to buy its struggling rival, Credit Suisse, in a deal worth $3.25 billion. Credit Suisse has faced its share of troubles for years, but the stunning end to the 166-year-old institution is continuing to shake markets.
Swiss authorities cut a deal with UBS to acquire Credit Suisse, which includes $280 billion in state and central bank support, according to Reuters reporting of the deal documents. That is equal to about a third of the country’s gross domestic product. Yet Swiss Finance Minister Karin Keller-Sutter insisted the move is not a bailout, but a commercial solution needed to stop potential contagion.
“I don’t think it’s going to [stop contagion] at all, I think it’s going to exacerbate it,” said Hal Lambert, founder of Point Bridge Capital and a former director at Credit Suisse. “What you’ve created is this monstrous bank in Switzerland… you have one institution now that literally could collapse the Swiss economy if it were to have a problem. So this is not the end of things, this is the very beginning of something they’re going to have to work through over many years to try to reduce that systemic risk.”
Lambert said the forced takeover could create even more fear. Global markets wobbled Monday on the news before rallying on hopes the banking crisis is easing.
It all started with the March 9 bank run and subsequent collapse of Silicon Valley Bank, followed by the failure of Signature Bank. By the time Credit Suisse released its annual report on March 14 declaring the bank had found “material weakness” in its financial reporting, faith in the institution was shaken.
“[Credit Suisse has] had problems for years and they’ve lost billions of dollars in bad decisions. It’s really been poorly managed for the last few years,” Lambert said. “Swiss National Bank should have started a much longer time period ago, they should have been on this a couple of years ago and looking for solutions to reduce the risk of Credit Suisse.”
Lambert said he believed had U.S. banks not triggered turmoil, Credit Suisse would still be standing today. But the obvious cracks at Credit Suisse made it vulnerable to a takeover, which Swiss regulators orchestrated with UBS.
“Let me be very specific on this: UBS intends to downsize Credit Suisse, its investment banking business, and align it with our conservative risk culture,” UBS Chairman Colm Kelleher said Sunday.
“I think there’s gonna be a lot of layoffs,” Lambert predicted, along with more outflows from investors who had assets at both banks. “When you combine them, they’re going to look out and go, ‘Wait, I don’t want to have this much at one bank now, because I’ve already spread my risk out.’”
In a country that relies on financial services to drive its economy, Lambert said the pressure is on Switzerland to make sure the end of its No. 2 bank does not mark the beginning of a banking crisis in the country.
Watch the full interview above for Lambert’s take on what’s happening with U.S. banks, whether more could fail and why.
