A man walks past Swiss bank Credit Suisse in London's Canary Wharf on Monday. Banking shares tumbled at the open of European markets Monday as they digested news of an emergency rescue takeover of the troubled European banking giant Credit Suisse by Union Bank of Switzerland for just $3.2 billion. Photo by Hugo Philpott/UPI | License Photo
March 20 (UPI) -- The $3.2 billion rescue takeover of troubled Swiss banking giant Credit Suisse by rival UBS sent the shares of both banks tumbling Monday morning, initially pulling the wider market down with them.
Credit Suisse shares were down more than 60% from Friday's close while UBS' were down 5% on the revelation that the deal will see Credit Suisse investors take a massive haircut on their investment, receiving just one UBS share for every 22.48 shares they hold in Credit Suisse.
Credit Suisse and UBS shares led an opening rout of European markets that saw the continent's banking index lose 2% with the shares of major lenders Deutsche Bank and BNP Paribas immediately diving 10% and 8% respectively while ING and Barclays shed around 4% of their value.
Mid-morning saw a slight recovery with Deutsche Bank clawing back some of its losses but still down 4%, while BNP Paribas was down 3%.
Asian markets were also hit with Hong Kong's Hang Seng index ending Monday down 2.65% at 19,000 while the Nikkei 225 shed 1.42% to end the session at 26,945.
Among the casualties was Saudi National Bank which confirmed to CNBC that it had suffered a loss of around 80% of its $1.5 billion investment in Credit Suisse -- although its shares shrugged off the news, gaining 2.1%.
Saudi National Bank, which holds a 9.9% stake in Credit Suisse triggered a stock free-fall for the Swiss bank last week after Saudi National Bank Chairman Ammar Al Khudairy said in an interview with Bloomberg TV on Wednesday that it could not increase its holding because of banking rules.
In a statement Monday, Saudi National Bank said its losses over Credit Suisse would "have no impact" on its growth plans and 2023 guidance.
After Swiss authorities and regulators brokered the takeover deal, announced Sunday, regulators sought to diffuse comparisons to the global financial crisis of 2008.
The former chief executive of UBS' British arm, Mark Yallop, told the BBC that the problems at Credit Suisse were quite specific.
"This is a takeover of a challenged institution with particular idiosyncratic problems that relate to it specifically [and are] not reflective of broader issues in the banking markets," said Yallop who is now Chair of the Financial Markets Standards Board, adding that the rescue "should bring a great degree of confidence back to the banking market more generally."
The crisis-era head of Britain's top financial watchdog, Lord Turner, said he did not believe the world was facing another banking crisis because banks were now more well-capitalized and the global economy was not facing the imminent crash of a credit-fuelled property bubble.
In a statement, UBS Chairman Colm Kelleher said the acquisition was "attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue."
"We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,"
"Acquiring Credit Suisse's capabilities in wealth, asset management and Swiss universal banking will augment UBS's strategy of growing its capital-light businesses," said Kelleher. "The transaction will bring benefits to clients and create long-term sustainable value for our investors.
UBS Chief Executive Officer Ralph Hamers said that bringing UBS and Credit Suisse together would build on UBS's strengths and further enhance UBS' ability to serve its clients globally and deepen its best-in-class capabilities.
"The combination supports our growth ambitions in the Americas and Asia while adding scale to our business in Europe, and we look forward to welcoming our new clients and colleagues across the world in the coming weeks," added Hamers.