The Cost of Distressed Bank Mergers in the Contemporary Regulatory Environment: Evidence from the UBS-Credit Suisse Merger

Abstract

This paper examines the long-term effects of UBS’s acquisition of Credit Suisse, the first distressed merger between two Globally Systemically Important Banks (G-SIB) since the 2008 Global Financial Crisis (GFC). Using cost of capital measures across the credit and equity channel for a panel of large European banks, the study estimates short-run effects with an event study specification and long-run effects with a difference-in-differences and dynamic event-study specifications. Both channels reveal a sharp, upward repricing immediately after the merger, but the effect dissipates relatively quickly. As such, the results support the characterization of the merger’s effect as a transitory uncertainty premium rather than a lasting reassessment of UBS’s underlying credit quality. The results differ markedly from those of acquirers during the GFC, from which much of the modern regulatory and resolution framework is based. These findings therefore challenge the conventional view that distressed G-SIB mergers impose persistent costs on the acquirer and suggest that the current resolution framework deserves revisiting.