Shares of Credit Suisse continue to fall on the background of the purchase of the main competitor

UBS, Switzerland's largest bank, has recently made a deal to purchase its troubled competitor Credit Suisse in an attempt to avoid further market turbulence and global banking sector shocks. However, the unexpected 14% drop in UBS's shares has raised concerns among investors about the risks of executing the deal, despite the Swiss National Bank's assistance of $100 billion and the covering of losses.

Analysts say that the solution to the banking crisis lies in ensuring transparency regarding the quality of assets and adequate liquidity for banks, especially those with capitalization deficiencies. In addition, further measures will likely be required to stabilize confidence, particularly in regional banks in the US. While increasing the limit for insured deposits would be helpful, capital injections are likely to be more effective and necessary. Some analysts have seen both positive aspects and risks in the recent deal. While it significantly reduces the direct systemic risk associated with Credit Suisse's weaknesses, there are two key negative elements: AT1 category shares of Credit Suisse are destroyed, and less creditworthy shareholders are left.

Approval from UBS shareholders for the deal was not requested, which raises concerns about the risks involved. The goal of the deal is to achieve mutually beneficial cooperation, with UBS shareholders also benefiting over time. The low price paid for the bank (CHF 3 billion) and significant insurance provided by UBS (with a government guarantee) are positive aspects, while UBS's strategy remains unchanged. However, UBS is taking on significant execution and legal risks, while the buyout has been temporarily suspended (and it is unclear for how long) and capital requirements are uncertain.