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Switzerland’s biggest lender UBS has agreed to buy its ailing rival Credit Suisse in a bailout deal aimed at stemming the crisis sparked by the collapse of two U.S. banks earlier this month. Financial markets panic.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement. It said the bailout would “ensure financial stability and protect the Swiss economy”.
UBS will buy Credit Suisse for 3 billion Swiss francs ($3.25 billion), about 60 percent below the bank’s market value at Friday’s close. Credit Suisse shareholders will be largely wiped out, getting just the equivalent of 0.76 Swiss francs in UBS shares, which were worth 1.86 Swiss francs on Friday.
Unusually, the deal will not require shareholder approval after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Credit Suisse (CS) has been losing the trust of investors and clients for years. In 2022, it recorded its biggest loss since the global financial crisis. But confidence crumbled last week after Silicon Valley Bank and Signature Bank collapsed after acknowledging “substantial weaknesses” in their bookkeeping, as soaring interest rates sapped the value of some financial assets.
Shares in the 167-year-old bank fell 25% in a week as money poured in from investment funds it manages, with account holders at one point withdrawing more than $10 billion in deposits a day, according to the Financial Times. A nearly $54 billion emergency loan from the Swiss National Bank has failed to stem the bleeding.
But Swiss officials said late Sunday that it had indeed “built a bridge” before the weekend to piece together the rescue.
“This acquisition is attractive for UBS shareholders, but let’s be clear that as far as Credit Suisse is concerned, this is a bailout,” UBS Chairman Colm Kelleher told reporters.
“It is absolutely necessary for the Swiss financial structure and … for global finance,” he told reporters.
Seeking to prevent the crisis from spreading to the global financial system on Monday, Swiss authorities began seeking private-sector solutions with limited state support while reportedly considering a plan B – full or partial nationalization.
“Given the extraordinary and unprecedented circumstances of recent times, the announced merger represents the best possible outcome,” Credit Suisse Chairman Axel Lehmann said in a statement.
“This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we were forced today to reach a resolution that delivers lasting results.”
The emergency takeover was agreed after days of frantic negotiations between financial regulators in Switzerland, the US and the UK. UBS and Credit Suisse rank among the 30 most important banks in the global financial system, with combined assets of nearly $1.7 trillion.
Financial market regulators around the world cheered UBS’ move to take over Credit Suisse.
U.S. authorities said they supported the operation and were working closely with the Swiss central bank to facilitate the takeover.
“We welcome today’s announcement by the Swiss authorities to support financial stability,” U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell said in a joint statement. “U.S. capital and liquidity positions. The banking system is strong and the U.S. financial system is resilient.”
ECB President Christine Lagarde said the banking sector remained resilient but the ECB stood ready to help banks keep enough cash on hand to fund their operations when needed.
“I welcome the swift actions and decisions taken by the Swiss authorities,” Lagarde said. “They help restore orderly market conditions and ensure financial stability.
The Bank of England said it welcomed measures taken by Swiss authorities to “support financial stability”.
“We have been working closely with our international counterparts in the preparation of today’s announcement and will continue to support its implementation,” it said in a statement. “The UK banking system is well capitalized, well funded and remains safe and sound.”
The fortunes of UBS and Credit Suisse, whose world headquarters are located in Zurich just 300 yards apart, have recently taken very different paths. UBS shares have risen 15% over the past two years, with 2022 profits of $7.6 billion. The bank’s shares were worth about $65 billion on Friday, according to Refinitiv data.
Credit Suisse shares have fallen 84% over the same period and posted a loss of $7.9 billion last year. As of last weekend, it was worth just $8 billion.
Credit Suisse dates back to 1856 as the Schweizerische Kreditanstalt (SKA), which was established to finance the expansion and industrialization of Switzerland’s railway network.
In addition to being Switzerland’s second-largest bank, it manages the wealth of many of the world’s wealthiest individuals and provides global investment banking services. By the end of 2022, it will have more than 50,000 employees, 17,000 of them in Switzerland.
The Swiss National Bank said it would lend 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to boost liquidity.
UBS Chief Executive Ralph Hammers will serve as chief executive of the combined bank, while Kelleher will serve as chairman.
The acquisition will strengthen UBS’ position as a leading global wealth manager with US$5 trillion in invested assets and strengthen its ambitions in the Americas and Asia. UBS said it expects to save $8 billion a year in costs by 2027. Credit Suisse’s investment bank is in the crosshairs.
“Let me be clear. UBS intends to scale back Credit Suisse’s investment banking business and bring it in line with our conservative risk culture,” Kelleher said.