Financial crisis is imminent in United States and Europe

Switzerland’s largest bank UBS is expected to buy the country’s No. 2 Credit Suisse while the U.S. government asks Wall Street gurus such as Warren Buffett to join to save the banking industry from trouble. Europe and the United States struggle to prevent another “Black Monday” and alleviate the risks of a global financial crisis.

The Financial Times (FT) and The Wall Street Journal (WSJ) reported on Saturday (local time) that UBS, with an asset of 1.1 trillion U.S. dollars, is soon to acquire the 575-billion-dollar Credit Suisse. Once it happens, it will create a supergiant European bank, which will be recorded as one of the biggest milestones in the history of global banking since the GFC occurred in 2008.

Swiss news media outlets were quoted by CNN as saying that the Swiss Finance Department held a crisis management meeting at 5 p.m. on Saturday to determine the fate of CS. The FT also reported that UBS and Credit Suisse each would have board meetings on Sunday, while The WSJ expected that the two banks might conclude the acquisition deal on Sunday at the latest.

The Swiss government is seeking emergency measures to bypass the normal legal process that requires six-week shareholder-level consultation and general meetings, according to The FT. By ensuring that the takeover is made public before Monday’s opening bell, it intends to prevent a significant loss of capital in case of a Black Monday crash.

Meanwhile, a high-ranking U.S. official was quoted by Bloomberg News on Saturday as saying that the U.S. government asked Warren Buffett several times to help resolve the crisis of small- and medium-sized banks. Likewise, at the request of U.S. Treasury Secretary Janet Yellen, JP Morgan CEO Chase Jamie Dimon, stepped in last Thursday to rescue First Republic Bank, which stood on the verge of a bank run.

Even after 11 top U.S. banks issued a 30-billion-dollar deposit plan to calm down the market, First Republic Bank stock prices plummeted a whopping 33 percent last Friday. The Mid-Size Bank Coalition of America called on Secretary Yellen and government authorities to take stronger action, arguing that the Federal Deposit Insurance Corporation should ensure two-year insurance for all deposits.


Hyoun-Soo Kim kimhs@donga.com