The UBS Group's state-backed buyout of Credit Suisse looked to seal off one source of fear for the global banking industry, helping to boost banking equities in the United States and Europe on Monday.
Swiss authorities agreed on Sunday to sell 167-year-old Credit Suisse Group AG to UBS Group AG for 3 billion Swiss francs ($3.2 billion), according to a Reuters report.
Major European banks' bonds declined as some Credit Suisse bondholders were wiped out in the transaction, while UBS shares rose 2%, recovering from a 16% decline brought on by doubts about the UBS Credit Suisse take over long-term advantages and the future of Switzerland, which was formerly seen as a model of ethical banking.
After days of intense discussions between financial authorities in Switzerland, the United States, and the United Kingdom, an emergency takeover was finally agreed upon.
Financial powerhouses UBS and Credit Suisse's combined assets of about $1.7 trillion place them among the world's 30 most significant banks.
UBS' Credit Suisse Takeover Draws Mixed Reactions
Global authorities in charge of regulating the financial markets applauded the UBS Credit Suisse takeover. US officials approved of the move and coordinated with their Swiss counterparts to facilitate the takeover, according to CNN.
Credit Suisse AT1 bondholders are upset by the decision since their investments seem to have been destroyed, while stockholders will get dividends as part of the buyout. Compared to AT1 bonds, equity investments are often considered a lower priority.
In a Sunday research note, Goldman Sachs credit analysts said the move may be viewed as "an effective subordination of AT1 bondholders to shareholders."
Experts also stated that the UBS Credit Suisse takeover reflects the "largest loss ever inflicted on AT1 investors" since establishing the "asset class post-global financial crisis."
Despite this, Elisabeth Rudman, global head of financial institutions at DBRS Morningstar, said the Swiss Financial Market Supervisory Authority's action was expected, CNBC reported.
She said the move should come as no surprise since AT1s are intended to "absorb losses."
"They've done what they were supposed to do," Rudman remarked.
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