UBS Group AG has agreed to acquire Credit Suisse Group AG at a significant discount of 60%. The deal involves a write-off of $17 billion worth of Additional Tier 1 bonds. The acquisition has attracted attention from industry experts, including Uday Kotak, the Managing Director of Kotak Mahindra Bank.
Industry Experts Weigh In
Uday Kotak tweeted that the acquisition of Credit Suisse by UBS sends a signal to all bankers and stakeholders. He emphasized the importance of risk-return assessment in investments over the size of a financial institution. Kotak’s statement is a reminder that obsession with size can be detrimental to a company’s risk-return matrix.
Regulator Finma also confirmed that Credit Suisse bonds, worth 16 billion francs, will become worthless to ensure private investors help shoulder the costs. The Swiss National Bank has offered a 100 billion-franc liquidity assistance to UBS, and the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over.
UBS Chief Executive Ralph Hamers said that UBS can handle the risks from taking over Swiss rival bank Credit Suisse. He added that UBS would be able to manage the risks that could emerge from a so-called superbank. “We have a very good capital ratio at UBS, and we also have a very good liquidity position. So we have contained the risks in the markets,” Hamers said in an interview broadcast on Monday.
Impact on the Stock Market
The acquisition of Credit Suisse by UBS has caused the stock market to fluctuate. The Sensex has fallen over 800 points, and the Nifty is below 17,000. However, some companies, such as Hindustan Unilever, ITC, and Kotak Mahindra Bank, have seen gains. Meanwhile, Tata Steel, Adani Power, and GAIL India have seen losses.
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