Credit Suisse Rescue Puts The Financial Crisis On Hold, Say Analysts

UBS Group AG's takeover of Credit Suisse Group AG puts the financial crisis on hold and solves the immediate problem, according to analysts.

This is not a long-term solution though, and there is need for a long-term perspective, said Arvind Sanger, founder and managing partner, Geosphere Capital LLC.

UBS Group will pay CHF 3 billion ($3.2 billion) in an all-stock deal to acquire Credit Suisse.

Banks will have to issue more equity to increase cushion and give people comfort that the financial sector will have adequate capital to deal with the concerns, Sanger said during an interview with BQ Prime.

Credit Suisse was the "weakest link" in the whole European set-up, and the bank has been wobbling for over a year, said Santosh Rao, head of research and partner at Manhattan Venture Partners LLC. The Silicon Valley Bank collapse threw the Swiss bank over the ledge, he said.

The UBS Group buying Credit Suisse brings steadiness in the market, according to him.

The Credit Suisse crisis finds its genesis in "overstimulation of the economy during the pandemic" and poor management of health and financial turbulences by governments globally at the time, according to Ravi Dharamshi, founder and managing director of ValueQuest Investment Advisors Pvt.

The current banking landscape that hovers over a liquidity crisis can further morph into a solvency crisis for some of the western world's economies, he said.

The response time of the regulators to recent banking crises such as the Silicon Valley Bank crisis and the Credit Suisse crisis has accelerated, according to him.

The Indian banking system is on the other side of the crisis, but the Indian economy will be affected by the global recession, Sanger said.

India had relatively lower exposure to global trade flows compared to other emerging markets. Hence, Indian markets should be able to weather the storm in terms of a slowdown, according to him.

"Once the dust settles, we could probably see a recession in the west, but India relatively has a low risk," Sanger said.

Dharamshi concurred, saying that India is an oasis in the current landscape. "We are better positioned given the coolness of our inflation, the stability of our currency, the shape of our banking system, and the management of our deficit as compared to the developed economies across the globe."

Investors in India can become more and more bullish, said Samir Arora, founder and fund manager at Helios Capital.

"These issues that are happening in the U.S. related to the banking sector, I think we are well protected from that... I would think that India is at least relatively a stand out. Although it doesn't show these days in the market, but [give or take] two weeks, it will settle down," Arora said.

Earlier, the Federal Reserve was expected to raise rates by 50 basis points, but now its decision will be difficult to anticipate, Sanger said.

"There is a 50% chance they raise 25 basis points, or 50% chance they do not, and 0% chance they raise rates by 50 basis points," he said.

Arora concurred with Sanger's view. "These problems with the regional banks or mid-tier banks in the U.S. overall has to be disinflationary in some sense. It is effectively like a dampening of economic activity... So, it would be logical to think that the U.S. will pause," he said.

"They can still use harsh language, they can still say that we are just pausing it for now to give you time. It would be a bit funny that on one hand, you are saving a bank and on the other, you are raising rates in that 15-day, 10-day period."