UBS agreed to buy out his embattled rival swiss credit for 3 billion Swiss francs ($3.2 billion) on Sunday, and Swiss regulators played a key role in the deal as governments sought to stem a contagion that threatened the global banking system.
“With the acquisition of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” said a statement from the Swiss National Bank, noting that the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to achieve the combination of the two largest banks in the country.
Under the terms of the agreement, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own.
“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency bailout. We have structured a transaction that will preserve the value left in the business while limiting our downside exposure,» UBS Chairman Colm Kelleher said in a statement.
The combined bank will have $5 trillion in invested assets, according to UBS.
The Swiss National Bank promised a loan of up to 100 billion Swiss francs ($108 billion) to back the acquisition. The Swiss government also provided a loss-bearing guarantee of up to 9 billion Swiss francs on certain assets above a pre-set threshold «in order to reduce any risk to UBS,» a separate government statement said.
“This is a trade solution and not a bailout,” Karin Keller-Sutter, Switzerland’s finance minister, said at a news conference on Sunday.
The UBS deal was mixed before markets reopened for trading on Monday after Credit Suisse shares posted their worst weekly drop since the start of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) made by the Swiss central bank last week in an effort to stem the slide and restore confidence in the bank.
Credit Suisse had already been fighting a chain of losses and scandalsAnd in the past two weeks, confidence has been shaken again as banks in the US have been reeling from the collapse of Silicon Valley Bank and Signature Bank.
US regulators’ endorsement of uninsured deposits at failed banks and the creation of a new funding facility for troubled financial institutions have failed to stem the impact and threaten to engulf more banks both in the US and abroad. abroad.
Credit Suisse Chairman Axel Lehmann told the news conference that financial instability caused by the collapse of US regional banks hit the bank at the wrong time.
Despite the involvement of regulators in the pairing, the deal gives UBS autonomy to manage the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.
Credit Suisse’s scale and potential impact on the global economy is much larger than regional US banks, putting pressure on Swiss regulators to find a way to unite the country’s two largest financial institutions. Credit Suisse’s balance sheet is about twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs at the end of 2022. It is also much more interconnected globally, with multiple international subsidiaries, making the management of Credit Suisse’s situation to be orderly. even more important.
Bringing the two rivals together was not without its difficulties, but in the end the pressure to avoid a systemic crisis won out. UBS initially offered to buy Credit Suisse for around $1 billion on Sunday, according to multiple media reports. Credit Suisse reportedly opposed the offer, arguing it was too low and would hurt shareholders and employees. people with knowledge of the matter told Bloomberg.
On Sunday afternoon, UBS was in talks to buy the bank for «substantially» more than 1 billion Swiss francs, sources he told CNBC’s Faber. He said the price of the deal increased throughout the day’s negotiations.
Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and disclosed in its annual report delayed early last week that the outputs have yet to be reversed. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further «substantial» loss in 2023.
The bank had previously announced a massive strategic review in an attempt to address these chronic problems, with Current CEO and Credit Suisse veteran Ulrich Koerner will take over in July.
katrina bishop contributed.