The Credit Default Swap is a risk indicator, a reference on the possibility of default, just like the country risk prepared by JPMorgan. It is also a tool used by investors when they require insurance.
In this context, UBS, the bank that acquired Credit Suisse, operates with heavy losses on the Zurich and Wall Street stock markets, which prompted its UBS debt to skyrocket this Monday. UBS Group’s one-year credit default swap rose more than 50 basis points on Monday, the biggest rise in 11 years.
Why the purchase did not generate more trust
The 3 billion Swiss francs ($3.2 billion) deal brokered by the government and signed Sunday night was intended to end a crisis of confidence at Credit Suisse and stop contagion through the global financial system that it started with the collapse of Silicon Valley Bank this month. . The deal values Credit Suisse at a fraction of its closing price, with a raft of government backing and guarantees to help ease UBS’s pain.
But the acquisition also complicates CEO Ralph Hamers’ investor case: that UBS is drama-free, profitable and focused on the lucrative provision of services to the wealthy. Now, the buybacks are on hold and it will likely take years to complete the integration. On the plus side, he’s gaining assets like Swiss Universal Bank at a deep discount, as well as access to Credit Suisse’s list of wealthy clients and a sizable asset base.
“UBS has traditionally operated a stable, high-quality, high-performing franchise”analysts including Tom Hallett of Keefe, Bruyette & Woods wrote in a note on Monday. “The Credit Suisse acquisition calls a lot of this into question.”
Source: Ambito
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