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Credit Suisse shares tank over 50% as historic UBS merger fails to quell fears

Credit Suisse shares tank over 50% as historic UBS merger fails to quell fears
Jordan Major

Credit Suisse  was saved from the verge of a catastrophic bankruptcy thanks to the purchase of the bank by UBS, the biggest bank in Switzerland. The transaction was intended to soothe the mounting worry throughout markets about the soundness of the financial system.

It was confirmed on Sunday by the Swiss Financial Markets Supervisory Authority that UBS will acquire Credit Suisse for $3.2 billion, a significant discount to the bank’s market value. To facilitate the acquisition, UBS will get a loan from the Swiss National Bank of up to 100 billion Swiss francs ($108 billion).

However, Credit Suisse’s (SWX: CSGN) share price crashed as much as 50% in regular trading on March 20 as fears over the bank remain despite the historic government-brokered deal. The stock is now trading at 0.82 CHF −1.04 (55.67%) on the day after changing hands as low as 0.69 CHF at one point setting a new record low.

Credit Suisse 1-day price chart. Source: Google Finance stocks

Credit Suisse shares remain highly volatile

Notably, CSGN stock had previously fallen to an all-time low, as much as 30% on March 15, requiring the CEO of the Swiss bank to provide new assurances on the firm’s financial health. Then, on March 16, Credit Suisse stock surged 25% after the Swiss National Bank’s lifeline announcement.

It’s worth mentioning that renowned economist Nouriel Roubini also known as ‘Dr. Doom’ warned, ‘Credit Suisse, by some standards, might be too big to fail but also too big to be saved’ on March 15.

Meanwhile, the cost of insuring UBS debt against default soared on Monday, March 20 following the bank’s takeover of rival Credit Suisse. UBS credit default swaps have doubled since news broke.

Cost of insuring against UBS default soars. Source: Holger Zschaepitz

On the merger, former Barclays CEO Bob Diamond warned:

It is a “a shotgun marriage. This wasn’t a solvency issue for Credit Suisse. They failed. They’re bankrupt…As you look at the next couple years, it’s hard to create a scenario where they’re profitable.”

Finally, ironically amid the volatility the quote of former Credit Suisse CEO Tidjane Thiam who said Bitcoin is the ‘very definition of a bubble’ back in 2017 when it was trading around $7,000 has resurfaced as the asset recently broke above $28,000 amid the Credit Suisse banking crisis.

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