Published - March 22, 2023 @ 11:11 AM (EET)

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As investor optimism about the takeover of its largest rival, Credit Suisse gathered pace, UBS Group AG (NYSE:UBS) jumped as much as 10% Tuesday, on track for its biggest gain since March 2020.

Meanwhile, the positive outlook about Europe's banking systems helped lift other US stocks, with shares of regional banks, including First Republic Bank, at the forefront of a broader market rally.

WHAT HAPPENED

In a deal brokered by regulators, UBS bought Credit Suisse for about $3 billion in shares earlier this week, and while the stock initially fell following the news, it has since reversed.

With the merger of UBS and Credit Suisse, the combined company will have about $5 trillion in assets under management, with $3.4 trillion in the wealth management business and $1.5 trillion in asset management services, making UBS the second-largest Wealth Manager in the World and the third-largest Asset Manager in Europe.

Still, S&P Global Ratings and Moody's Investor Service revised its outlook on UBS to negative on Monday, saying it expects the integration of large parts of Credit Suisse's investment banking activities to carry material execution risk.

NOW WHAT

While the wipeout of Credit Suisse's Additional Tier-1 (AT1) bondholders has sent shockwaves through the bank debt market, for now, the Swiss lender's rescue seems to have assuaged the worst fears of systemic contagion, boosting shares of European banks and US regional lenders.

The S&P 500 and the Dow Jones Industrial Average posted their second consecutive day of gains for the first time since the collapse of Silicon Valley Bank and Signature Bank less than two weeks ago.

Moreover, the deal offers UBS investors many benefits, including gaining valuable assets such as Credit Suisse's Swiss business and access to its wealthy and sizeable asset base roster at a rock-bottom price. It will also allow the bank to cherry-pick the best talent from its rival.

PRICE ACTION: NYSE-listed shares of Credit Suisse (NYSE:CS) closed 2.4% higher, while UBS shares ended Tuesday's session 11.8% higher.

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