UBS agreed to buy beleaguered rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) on Sunday, with Swiss authorities playing a significant role in the deal as nations sought to halt a global banking system contagion.
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” read a statement from the Swiss National Bank.
The central bank also stated that it collaborated with the Swiss government and the Swiss Financial Market Supervisory Authority to bring the country’s two major banks together.
According to the terms of the agreement, Credit Suisse shareholders would get one UBS share for every 22.48 Credit Suisse shares they own.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” said UBS Chairman Colm Kelleher in a statement.
This comes after the Credit Suisse reported that it will secure a $54 billion bailout loan from the Swiss National Bank after a recent bank run on its “financial weakness” led to liquidity concerns.
Initially, it was rumored that UBS offered Credit Suisse $1 billion but the latter pushed back on the deal because it is “too low and would hurt shareholders and employees who have deferred stock.”
Soon after, the price tag rose to $2 billion, with UBS agreeing to acquire the troubled Credit Suisse following emergency meetings with regulators and the Swiss National Bank that resulted in Swiss authorities agreeing to rewrite governance laws otherwise requiring a crucial shareholder vote.
The combined bank will have $5 trillion of invested assets, according to UBS.
To fund the transaction, the Swiss National Bank committed a loan of up to 100 billion Swiss francs ($108 billion). The Swiss government also guaranteed to accept losses of up to 9 billion Swiss francs from specific assets that exceeded a predetermined threshold “in order to reduce any risks for UBS,” according to a second government statement.
“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister, in a press conference Sunday.
The UBS agreement was thrown together quickly before markets reopened on Monday, after Credit Suisse shares suffered their greatest weekly fall since the coronavirus outbreak began. The losses occurred despite the Swiss central bank granting a new loan of up to 50 billion Swiss francs ($54 billion) last week in an effort to arrest the fall and restore trust in the bank.
Credit Suisse had already been dealing with a spate of losses and controversies, and confidence had been shaken anew in the last two weeks as banks in the United States grappled with the failures of Silicon Valley Bank and Signature Bank.
The Swiss bank has a significantly larger scope and potential impact on the global economy than smaller banks in the United States, putting pressure on Swiss regulators to find a method to merge the country’s two largest financial companies. Credit Suisse’s balance sheet, at over 530 billion Swiss francs as of the end of 2022, is roughly double the size of Lehman Brothers’ when it failed. It is also significantly more globally networked, with many international subsidiaries, making Credit Suisse’s predicament even more critical.
Credit Suisse lost over 38% of its deposits in the fourth quarter of 2022, and the bank acknowledged in its delayed annual report released earlier this week that the outflows had yet to reverse. It announced a 7.3 billion Swiss franc net loss for 2022 and expects another “substantial” loss in 2023.
In order to address these long-standing challenges, the bank had already planned a substantial strategic revamp, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.
Information for this briefing was found via CNBC and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
