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Swiss bank UBS will take over its competitor Credit Suisse for more than $3 billion

LEILA FADEL, HOST:

One big Swiss bank is buying a competitor that's in trouble.

STEVE INSKEEP, HOST:

The Swiss bank UBS is the buyer. And it is picking up Credit Suisse. To some English speakers, that may look on the page like Credit Suisse. People following the news have seen and heard that name in recent days. The bank was under pressure after other banks failed and investors lost confidence in banking stocks. Now UBS has bought it cheap as part of a government-brokered plan to restore confidence.

FADEL: But has it? NPR's Rob Schmitz joins us now from Berlin to talk about this. Good morning, Rob.

ROB SCHMITZ, BYLINE: Good morning, Leila.

FADEL: So Switzerland's biggest bank just got bigger by taking over the country's second biggest bank. What's the significance of this move?

SCHMITZ: It's a big deal. Last week, Credit Suisse lost around a fifth of its value in a single day. And this was spurred in part by Credit Suisse's mismanagement, but also in part by bank failures in the U.S. that began with Silicon Valley Bank and then spread to other small banks.

FADEL: Yeah.

SCHMITZ: Credit Suisse is not a small bank. But it's been weakened in recent years by scandals. And customers had been withdrawing money for months. Switzerland's central bank tried to help last week with a $50 Billion injection of capital. But it didn't restore investor confidence. So over the weekend, the Swiss government brokered a deal for UBS to take over Credit Suisse. The government took the unusual move of bypassing a vote by Credit Suisse shareholders because they were in a rush to do this before markets opened on Monday morning. At a press conference last night, Karin Keller-Sutter, head of Switzerland's federal department of finance, explained why they were working so fast.

(SOUNDBITE OF ARCHIVED RECORDING)

KARIN KELLER-SUTTER: The bankruptcy of Credit Suisse would have had a collateral damage, a huge collateral damage, on the Swiss financial market, also risk of contagion for UBS and other banks and also internationally.

FADEL: The risk of contagion. So the Swiss government was worried about a domino effect that would put other big international banks at risk. How likely is it that the deal will prevent that?

SCHMITZ: Yeah, that's a big question. And it depends on who you talk to and how pessimistic they are about the health of the overall financial system. The Swiss government emphasizes that this deal is not a bailout. And observers are actually calling this a bail-in, meaning that instead of the government spending massive amounts of taxpayer money to save a bank, they've persuaded another bank to save one of its competitors. And even though, in this case, the Swiss government did agree to contributing a $100 billion liquidity line to UBS as part of this deal, for Mark Williams, a professor of finance at Boston University, he says he's somewhat hopeful.

MARK WILLIAMS: In essence, what's happened here hopefully is UBS' purchase will put a line in the sand and hopefully quell any other concerns about growing depositor runs.

FADEL: OK. He's saying hopefully a lot.

SCHMITZ: Yeah.

FADEL: How hopeful are people that this deal will prevent other bank runs? How are the markets responding?

SCHMITZ: Not well. The first markets are open in Asia, were not encouraging. We're seeing across-the-board declines. Here in Europe, markets just open. And they're down across the board by around 2%, with shares of Germany's two biggest banks down 3%. And most tellingly, UBS shares are down more than 14% in opening trading. That is not a good sign. A big problem here is that the holders of $17 billion worth of Credit Suisse bonds have had their investments wiped out in this deal. That is not a good signal to investors or to debt markets. So even though this deal was meant to reassure the markets and prevent other bank failures, when it all comes down to it, there is a fair amount of anxiety over all of this. And the risk of contagion is still there, Leila.

FADEL: NPR's Rob Schmitz in Berlin. Thanks, Rob.

SCHMITZ: Thank you.

(SOUNDBITE OF SAO PAULO UNDERGROUND'S "POMBARAL") Transcript provided by NPR, Copyright NPR.

Leila Fadel is a national correspondent for NPR based in Los Angeles, covering issues of culture, diversity, and race.
Rob Schmitz is NPR's international correspondent based in Berlin, where he covers the human stories of a vast region reckoning with its past while it tries to guide the world toward a brighter future. From his base in the heart of Europe, Schmitz has covered Germany's levelheaded management of the COVID-19 pandemic, the rise of right-wing nationalist politics in Poland and creeping Chinese government influence inside the Czech Republic.