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Big Bank Update: UBS & Credit Suisse

Plus500 | Thursday 28 September 2023

After a challenging year for some banking corporations, the banking industry seems to be back in the spotlight. 

Swiss investment banks, UBS (UBSG.VX), and Credit Suisse are making the headlines again, this time in relation to the sanction on Russia, and perhaps for not the best of reasons. 

Here’s why some big banks are back in the spotlight and how these Swiss giants may be related to the war between Russia and Ukraine:

An image of big bank buildings

UBS & Credit Suisse: Rivals Turned Partners

To understand how these two banks are related to each other and get a gist of the current situation, it is important to know their backgrounds and latest updates. 

Although UBS and Credit Suisse were initially rivals, back in June, the former purchased the latter in an attempt to save it from bankruptcy in light of its financial woes over the years and this year’s banking crisis. The purchase was announced back on March 19 and was completed on June 12, making UBS a “wealth management behemoth.”  The Swiss government facilitated the agreement, which amounted to $3.3 billion, making it “the biggest banking tie-up since the 2008 global financial crisis.” (Source:Aljazeera)

While Credit Suisse was certainly struggling, the purchase, according to UBS CEO, Sergio Ermotti, was deemed “the best outcome for UBS, [its] stakeholders, and the Swiss economy.”  Some market analysts even noted that UBS was “the biggest winner in this market from the March demise of Credit Suisse.”

Moreover, beyond the Credit Suisse purchase, it is also worth noting that since in Switzerland, borrowing costs were lower than in the Eurozone, and the Swiss Franc performed well among its Group-of-10 peers, the general business landscape has been good and debt sales also reached their highest level in over a decade. 

Evidently, since March 20 (a day after the announcement) and up until last Tuesday, UBS seems to have greatly benefitted from the purchase as its stock price soared by over 33%. 

UBS stock price chart since March 2023 until September 28th 2023

However, as of more recently, on Wednesday, September 27, UBS’ shares suffered losses. In addition, the Swiss Stock Exchange temporarily suspended trading in UBS stock, which lost 8% of its value prior to the halt. Eventually, trading was resumed and the big bank closed Wednesday about 3% lower. So why is it on a sudden downtrend now?

Under the Radar: UBS & Credit Suisse

The US Department of Justice (DOJ), a federal agency tasked with law enforcement, has expanded probations into UBS and Credit Suisse over alleged compliance issues that reportedly enabled Russian clients to circumvent sanctions.

Over the last decade, the United States has imposed sanctions on numerous Russian individuals for various geopolitical motives including the war in Ukraine. Accordingly, on Wednesday, Bloomberg reported that the DOJ has asked UBS to provide information about how they have managed client accounts linked to individuals who have been sanctioned due to “Russia’s invasion of Ukraine in 2022 and annexation of Crimea in 2014.”

As a result, UBS’ shares traded lower on Wednesday and were temporarily suspended from trading on the Swiss Stock Exchange, as mentioned above. 

What Does this Mean for UBS?

Despite the gloomy situation, traders, investors, and analysts may want to keep in mind the fact that this investigation is in its initial phases and may not necessarily lead to legal charges or a resolution.

Nevertheless, this dreary setback occurs at a crucial moment for UBS, as it is currently in the midst of incorporating a significant workforce from its purchase of Credit Suisse. Furthermore, whereas the Credit Suisse purchase has benefited UBS, it also meant that the bank would inherit the legal issues that played a significant role in Credit Suisse's downfall in March. 

Additionally, according to analyst, Nicolas Payen, “the initial share price reaction seemed excessive, however, this probe illustrates the contingent liabilities risks that UBS is exposed to after its acquisition of Credit Suisse.”

As such, these factors can still play a significant role in both the banking sector’s developments and UBS’ future growth prospects. 

How Is the DOJ Tackling This Issue?

This investigation might pose difficulties and prove frustrating not only for UBS and Credit Suisse but also for investigators from the US Department of Justice. It seems that DOJ investigators have chosen to seek information from UBS directly, bypassing the official diplomatic channels, which tend to be slower in processing such requests. 

Conclusion 

In conclusion, the implications of UBS’ purchase of Credit Suisse are yet to be determined as this merger seems to be a double-edged sword in the meantime. Additionally, traders and analysts alike may want to keep track of any updates regarding the latest DOJ and UBS probes to see where the banking industry may be heading in the near future. 


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