The acquisition of the discredited Swiss bank Credit Suisse by compatriot and industry peer UBS is a strong signal to people who believe that the financial markets are not yet in crisis, says analyst Hebe Chen of IG Markets.
She writes that the fall of Credit Suisse exposed “the rotten roots of the banking system,” such as “poor risk controls and poor management.” “The collapse of Credit Suisse may be the tip of the iceberg.”
Other analysts also have questions about the takeover plan. “The immediate risks have been removed,” said Flora Bacahut of Jefferies. “But there are also question marks.” In particular, the fact that so-called Additional Tier 1 bonds have been made worthless overnight will have consequences for the broader capital market, thinks Chamath Da Silva of BetaShares. He expects that decision could lead to more holders of such bonds wanting to sell.
KBW’s Andrew Stimpson also warns against this. He fears that the costs of raising that AT1 capital will go up for banks. Or that extra rules will be drawn up regarding that form of capital. This could have consequences for the entire banking world. However, the risk of ‘contagion’ within the banking sector has disappeared now that Credit Suisse is being taken over.