After Silicon Valley Bank and Signature Bank, Credit Suisse has now joined the list of banks that have ceased trading. However, the situation with Credit Suisse is different as it was not shut down by the regulator. Instead, UBS bought it out at a fire sale price.
Credit Suisse has been in crisis for the past three years, with poor stock performance over a much longer period. Since the market peak just before the 2008 global financial crisis, the bank's stock lost 99.11% of its value, except for a brief rally in 2009. One of their biggest investors, the Saudi National Bank, has also injected funding into the bank in the past. However, the bank's current issues started when the SNB stated that they wouldn't provide any additional funding, leading the Swiss National Bank to provide an emergency loan of $54 billion.
For the sake of the global banking system's security and Switzerland's reputation as a global banking centre, the Swiss banking regulators decided to merge Credit Suisse with its biggest rival, UBS. This buyout may not seem like a good deal for Credit Suisse shareholders on the surface, as the purchase price of $3.25 billion is a significant discount to the last trading market cap of $8.6 billion. Additionally, rushing the deal through implies that the Swiss government will need to change the law to allow it to happen without a vote being put to shareholders.
Nonetheless, consolidation is happening, with smaller banks failing or receiving cut-price buyout offers. Although this might make investors and customers nervous, banks are significantly better capitalized than they were prior to 2008.
Proper diversification is crucial for investors to spread their cash across different companies, industries, and countries, especially since 2008 saw the entire financial sector undergo huge levels of volatility and major investor losses, just as 2022 saw the same happen in tech. While there is never a guarantee that a financial crisis won't happen, most analysts agree that the banking system is fundamentally secure.
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