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UBS rescues Credit Suisse in deal brokered by Swiss government

PIEN HUANG, HOST:

We begin tonight's program by looking into the purchase of Swiss bank Credit Suisse by rival UBS. The emergency deal today cost about $3 billion, and it likely saved Credit Suisse from going bust. It comes just days after turmoil hit the banking market after the fall of Silicon Valley Bank. Here to talk more about the deal and what it means is NPR's Stacey Vanek Smith. Hey, Stacey.

STACEY VANEK SMITH, BYLINE: Hello.

HUANG: So how did all this start? Why did Credit Suisse find itself in crisis?

VANEK SMITH: Yeah. So Credit Suisse is Switzerland's second-largest bank. It's nearly 170 years old. It is considered one of the most important banks in the world. And it was basically on the brink of failure this weekend. I spoke with Mark Williams about this. He's a professor of finance at Boston University. He also used to work as a bank examiner for the Federal Reserve. And he said the failure of Silicon Valley Bank had investors and depositors feeling pretty panicky. And also, Credit Suisse has been troubled for a while. It's had a bunch of scandals and fines and reputational damage, that kind of thing. And so in this environment, with this crisis of confidence, people just started yanking billions of dollars out of Credit Suisse.

MARK WILLIAMS: Well, Credit Suisse was, 15 years ago, an incredibly strong and vibrant bank. And just over the last decade and a half, it's just made continual bad strategic decisions. Its deposit base has dwindled, its stock has fallen and it's just in bad shape. I'm convinced if this deal hadn't happened today, Credit Suisse would have gone bankruptcy.

VANEK SMITH: The Swiss government stepped in and helped to broker this deal where UBS, another Swiss bank, is buying Credit Suisse for about $3 billion. And that is a pretty good deal, actually. Credit Suisse is valued at around $8 billion.

HUANG: Well, Stacey, why did the government step in here and why this emergency deal on a Sunday?

VANEK SMITH: Yeah, so a couple of reasons. First - because letting Credit Suisse fail would have been pretty catastrophic. It's actually twice the size of Silicon Valley Bank. It is a huge bank. It's also considered pretty systemically important, meaning that there's a worry that if Credit Suisse failed, it could really destabilize the whole global banking system. People might really panic. And that is what no government in the world wants right now. In fact, in a press conference this afternoon, the Swiss president said that this deal was vital to the stability of the global banking system.

HUANG: I think this is giving people a lot of throwback feelings to the last financial crisis - all the bailouts and government-assisted buyouts. You know, is there a risk of contagion here? And, you know, is that what's happening right now?

VANEK SMITH: Yeah. I think that is the question on everybody's mind. I think that's what everybody's worried about. I actually - I asked Mark Williams about this. He said this kind of thing, the failure of a bank like Credit Suisse, is exactly the kind of thing that could spark a full-on banking crisis. He saw this weekend really as a tipping point.

WILLIAMS: Banks themselves are a canary. They represent the economic strength of that country. So when you see big names, such as Credit Suisse, on the ropes, and if they're not rescued, then that can be a global contagion.

VANEK SMITH: So Williams says that is why this government-assisted buyout on a Sunday was so important, because it sends this message out that banks will not fail, that governments won't let them.

HUANG: And quickly for us, Stacey, what does this mean for UBS?

VANEK SMITH: I mean, it's a good deal for them. They're basically buying a rival bank at a fire sale price, but they're also taking on some not-so-great baggage with Credit Suisse. In fact, the Swiss central bank kind of sweetened the pot, offering UBS $100 billion to help close this deal.

HUANG: That was NPR's Stacey Vanek Smith. Stacey, thanks so much for sharing your reporting with us.

VANEK SMITH: Thank you. Transcript provided by NPR, Copyright NPR.

Stacey Vanek Smith is the co-host of NPR's The Indicator from Planet Money. She's also a correspondent for Planet Money, where she covers business and economics. In this role, Smith has followed economic stories down the muddy back roads of Oklahoma to buy 100 barrels of oil; she's traveled to Pune, India, to track down the man who pitched the country's dramatic currency devaluation to the prime minister; and she's spoken with a North Korean woman who made a small fortune smuggling artificial sweetener in from China.
Pien Huang is a health reporter on the Science desk. She was NPR's first Reflect America Fellow, working with shows, desks and podcasts to bring more diverse voices to air and online.