The deal and the “Credit Suisse” crisis came at a time when the banking sector in the United States of America is also facing a number of turmoil, after the collapse of Silicon Valley and Signature, which reinforced widespread fears in the markets coupled with a state of uncertainty, for fear of extending the “domino effect” to other banks. around the world.
This atmosphere brings to the fore concerns related to the global financial crisis in 2008, amid questions about the extent of the impact of the current “global banking crisis” on the Middle East?
With the collapse of Silicon Valley, central banks in the region rushed to reduce the impact of national banks as a result of this collapse, in order to contain markets that fear the spread of the crisis and its psychological repercussions.
As for the crisis of the “Credit Suisse” group after that, the presence of Gulf investors (primarily from Saudi Arabia and Qatar) has reinforced concerns about the expected consequences, at a time when analysts are minimizing the size of the impact of the crisis, and its confinement largely to the psychological effects resulting from investor fears, as well as Effects on the stock market.
The most prominent of those relatively affected by the Credit Suisse crisis
The Saudi economic analyst, Suleiman Al-Assaf, says in statements to “Sky News Arabia Economy”, that the global banking crisis represented in the collapse of Silicon Valley in America and the Credit Suisse crisis will certainly affect the region in one way or another, whether there are shareholders or not, by referring To what he described as “psychological repercussions” resulting from that crisis, which affected a number of banks.
He points out that in the case of the American Silicon Valley Bank (ranked 16th among the largest banks in the United States and has assets of about $200 billion), there is no overlap between it and banks in the Middle East, and therefore “the impact will be psychological and limited.”
And he adds: As for Credit Suisse, there are those directly affected in the Middle East, led by the National Bank of Saudi Arabia, which owns 9.9 percent of the shares of the aforementioned bank and is the largest shareholder (after the capital increase carried out by Credit Suisse a few months ago), and thus is affected in some way. albeit limited (referring to unrealized book losses as the share price declines), especially after the UBS acquisition of Credit Suisse.
While the Olayan Group owns 3.2 percent of the bank, Al-Assaf also refers to the contribution of the Qatar Investment Authority by 6.8 percent, and thus it is the second largest shareholder in the Swiss bank after the National Bank of Saudi Arabia.
And the Saudi economic analyst continues: “The reassuring thing in this scene is that the investments of the Saudi Bank (which owns assets in excess of 945 billion riyals, and the bank has strong capital and good liquidity above the regulatory requirements) in its Swiss counterpart represents less than half a percent of the bank’s total assets.” Al-Ahly, and 1.7 percent of the bank’s investment portfolio .. Therefore, the impact will be limited and not of a large size on the bank or the national economy, especially since the state has strong surpluses and it stands by the banks, in a way that helps reduce the impact of national banks and the region.
The influence of the psychological factor and investor attitudes
Al-Assaf concludes by saying: “There will be psychological repercussions for sure, as we have seen in the stock markets and the state of uncertainty that occurred…but talking about real confirmed problems is unlikely, except as a result of psychological repercussions and the actions of investors.”
- Last November, the Saudi National Bank invested 5.5 billion riyals, or 9.88 percent, in Credit Suisse, as part of its participation in the capital increase process.
- According to the previously announced financial statements for the year 2022 and financial projections for the year 2023, the investment in the Credit Suisse Group is less than 0.5 percent of the total assets of the National Bank of Saudi Arabia, and 1.7 percent of the bank’s investment portfolio as of December 2022 (according to a bank statement).
- With regard to capital adequacy, the impact on the capital adequacy ratio of the National Bank of Saudi Arabia from the decline in the market value is about 15 basis points as of December 2022.
- Regarding the latest announced developments, it is expected that the potential impact on this ratio will be about 35 basis points, according to the bank, which indicated that there is no impact on its profits.
- Any change in the fair value of the investment in the Credit Suisse Group “will not affect the bank’s financial expectations and plans for the year 2023.”
Due fears of the ‘domino effect’
For his part, the writer and economic analyst Muhammad Al-Ramadan indicates, in statements to “Sky News Arabia Economy”, that the fears that the markets are currently witnessing under the weight of the crises faced by global banks are “deserved fears”, that is, they are justified, and may lead to an impact on Stock prices only, and on the other hand creates an opportunity for other investors (according to the principle of some about buying in crisis; to take advantage of falling stock prices).
And he continues: “The justification for these fears is that there are large banks that go bankrupt – such as Silicon Valley in the United States of America – and some fear that the crisis could be just the beginning of a wave of bankruptcies and crises (according to the domino effect in economic crises), although there is no evidence over those concerns.
It is believed that the negative effects will be reflected directly on stock prices in the markets, and when the results of the institutions’ business are issued, they will reflect the lack of influence, and then those fears will end.
- UBS’ acquisition of Credit Suisse came at a price less than half of the latter’s value of 7.4 billion francs at the close of Friday’s trading.
- Under the terms of the deal, Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares held.
- The deal included the provision by the Swiss National Bank of 100 billion francs of liquidity assistance to UBS, in addition to a government guarantee of 9 billion francs for potential losses of assets.
- According to the Swiss regulator, about CHF16 billion of Credit Suisse bonds will be rendered worthless, in order to ensure that private investors bear the costs.
Credit Suisse has been exposed in recent years to a series of problems, leadership changes and legal issues. Clients withdrew more than $100bn of assets in the last three months of last year as concerns mounted about the bank’s financial health, and outflows continued even after the bank paid shareholders a 4bn franc capital increase.
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