The outcome for equity-holders may also worry investors in other weak banks, particularly in Europe. If this makes it harder to raise equity capital, it could have downsides for stability, said Krishna Guhu, EvercoreISI strategist.
Guhu said that the market focus will likely expand to other weaker European banks as well as U.S. regional banks. After much speculation and markets panicked at the hands of a rolling bank crisis, UBS UBS made a play for its long-time Swiss rival.
Here are the UBS-Credit Suisse deal details:
As far as Credit Suisse is concerned, this is an emergency rescue, according to Colm Kelleher, chair of the Credit Suisse board and executive team.
It is a historic day, and a day we hoped would not come, Kelleher said on an analyst call that included UBS CEO Hamers. Credit Suisse executives or board members were not on the call.
UBS execs said they would move quickly to wind down Credit Suisse's investment bank. The company said it had taken reserves against Credit Suisse's high-profile litigation matters.
The agreement which should achieve its goal of stabilizing Credit Suisse is positive for stability and global markets, given the possibility of a no-deal scenario. The decision to completely write down CHF 15.8 billion in CS AT 1 debt, which we warned last week, could be at risk to allow SNB funding on the scale needed to spread contagion through the European banking system via repricing of bail-in debt and equity at other banks, Guhu said.
Jefferies EU banking team said Cautious optimism was also echoed by the Cautious optimism.
While this deal reduces the immediate systemic risk from CS weaknesses, we think two key negatives will also catch the eye: 1 that CS' AT 1 holders are wiped out whereas shareholders are not completely in creditworthiness, and 2 that shareholder approval was not asked on UBS' side for this deal, explained the Jefferies team in a late Sunday client note.
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