The recent announcement of UBS’s takeover of Credit Suisse has sent shockwaves throughout the banking industry. Many experts are calling it a signal of the changing times and a sign of things to come. Uday Kotak, one of India’s most successful bankers, has weighed in on the matter, and his insights shed some light on what this takeover could mean for the future of banking. In this article, we will examine Kotak’s comments and analyze the implications of this takeover.
Veteran banker and managing director of Kotak Mahindra Bank, Uday Kotak on Monday tweeted his “signal to all bankers and stakeholders” following the acquisition of Credit Suisse Group AG by UBS Group AG.
Kotak Mahindra Bank CEO said the Credit Suisse saga highlighted the importance of risk-reward assessment in investing beyond the size of a financial institution.
The billionaire said in a tweet that Credit Suisse sold to UBS for $3 billion, which represents a 60% discount to the stock’s closing value on Friday. 600 billion dollars’ worth of balance sheet assets were sold for 3 billion dollars’ worth of equity. AT1 bonds worth 17 billions of dollars were written down. When risk surpasses a fixation with return matrix size, it sends a signal to all bankers and stakeholders.
UBS to buy Credit Suisse in $3.3 billion deal
A unprecedented government-brokered deal between UBS and Credit Suisse was made in response to a confidence crisis that had started to reverberate across the world’s financial markets.
In a share-for-share transaction that involves substantial government guarantees and liquidity restrictions, the Swiss bank is paying its rival $3.2 billion. The share price of Credit Suisse fell by 99 percent from its 2007 peak.
The government is providing a 9 billion franc guarantee to cover any potential losses from the assets that UBS is purchasing, while the Swiss National Bank is providing UBS with 100 billion francs in liquidity support.
Around 16 billion francs worth of AT1 bonds from Credit Suisse will be idle, according to regulator FINMA, to assist private investors in covering the costs.
Ralf Hamers, chief executive of UBS, claimed that by acquiring Swiss rival bank Credit Suisse, UBS could manage the risk.
UBS would be better able to control the risks that could result from a so-called superbank, according to Hamers, who will serve as chief executive of the combined company.
“With UBS, we have excellent capital ratios and a strong liquidity position. Hence, we have managed market risks “.
“The next thing we need to do is make CS’s investment bank into an institution similar to UBS. It is what we refer to as a capital-light investment bank. We’re not taking on as much danger by doing this.”
There would always be cost cuts, he continued, but he did not currently have any data on layoffs at Credit Suisse.
Still, he acknowledged, there were no set plans in place at the moment.
“There is unquestionably room for improvement and opportunity. We also have a new future with our many employees—CS has 50,000 worldwide. Together, we can create a bank that is even more stunning.
According to him, the planned acquisition will give Credit Suisse customers and the Swiss financial industry protection and stability.
Hammer claimed that the acquisition will restore stability and security for CS consumers. “But also that we’re keeping up our status as a Swiss financial hub.”
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