Credit Suisse: stock plummets, with doubts about UBS merger

(CercleFinance.com) - Credit Suisse's shares fell by over 60% in Zurich on Monday, following the announcement of its merger with UBS, which shows a severe discount for existing shareholders.


At 10.15am, the Swiss bank's share price fell by 60.4% in particularly high volumes, while UBS was also taking a big hit (-14%), while the SMI index was down just 1.4%.

The proposed merger involves a 3 billion Swiss franc buyout offer for the entire share capital of Credit Suisse at a unit price of 0.76 CHF, 60% below its closing price on Friday evening (1.86 CHF).

This means that the bank's market capitalisation has been wiped out - from around 30 billion Swiss francs to 3 billion Swiss francs in the space of just over two years, analysts at Capital Economics say.

While the market may be relieved by the end of the uncertainty surrounding the future of Credit Suisse, specialists point out that many uncertainties remain regarding the implementation of this "arranged" marriage.

Credit Suisse will be absorbed into a healthier bank with deeper pockets, Capital Economics teams add.

This should give UBS management time to restructure Credit Suisse and reduce its struggling investment banking business, the London-based research firm added.

However, Capital Economics points out that the history of forced marriages in the financial sector has been mixed, to say the least, as illustrated by the failed merger between ING and Barings in 1995.

Analysts seem particularly concerned about the impact of bad debts that may arise from the merger deal, which disadvantages bondholders.

Capital Economics is concerned that Credit Suisse's losses could get worse, which could also damage the reputation of UBS.

The deal may turn out to have been the turning point in the banking crisis we are currently experiencing, although we probably won't know for a while, the market intelligence firm concludes.



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