By Mark Thompson, CNN
Switzerland’s largest bank, UBS, has agreed to buy its Rival in crisis Credit Suisse in an emergency bailout deal aimed at stemming the panic in financial markets sparked by the failure of two US banks earlier this month.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement. He said the bailout would “ensure financial stability and protect the Swiss economy.”
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will largely disappear, receiving the equivalent of just 0.76 Swiss francs worth of UBS shares for shares that were worth 1.86 Swiss francs on Friday.
Remarkably, the deal will not need shareholder approval after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Credit Suisse had been losing the trust of investors and customers for years. In 2022, it posted its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its accounting and as the demise of Silicon Valley Bank and Signature Bank raised fears about weaker institutions at a time when skyrocketing interest rates have undermined the value of some financial assets.
Shares of the 167-year-old bank fell 25% during the week, money poured out of mutual funds it manages and, at one point, account holders withdrew deposits worth more than $10 billion a day, it reported. the Financial Times. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.
But he “built a bridge” for the weekend, to allow the rescue to be put together, Swiss officials said late Sunday.
“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency bailout,” UBS Chairman Colm Kelleher told reporters.
“It is absolutely essential for the financial structure of Switzerland and … for global finance,” he told reporters.
Desperate to prevent the collapse from spreading through the global financial system on Monday, Swiss authorities began seeking a private sector solution, with limited state support, while reportedly considering Plan B: a full nationalization or partial.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available 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 are compelled to find a solution today that will deliver a lasting result.”
The emergency takeover was agreed after days of frantic negotiations between financial regulators in Switzerland, the United States and the United Kingdom. UBS and Credit Suisse are among the top 30 banks in the global financial system and together have almost $1.7 trillion in assets.
Regulators applaud the takeover
Financial market regulators around the world applauded UBS’s decision to take over Credit Suisse.
US authorities said they supported the move and worked closely with the Swiss central bank to assist in the acquisition.
“We welcome today’s announcements from the Swiss authorities to support financial stability,” US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said in a joint statement. “US liquidity and capital positions, the banking system is strong, and the US financial system is resilient.”
Christine Lagarde, president of the European Central Bank, said the banking sector remains resilient, but the ECB stands ready to help banks keep enough cash on hand to finance their operations if the need arises.
“I welcome the quick action and the decisions taken by the Swiss authorities,” Lagarde said. “They are critical to restoring orderly market conditions and ensuring financial stability.
The Bank of England said it welcomed the measures taken by the Swiss authorities “to support financial stability.”
“We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” he said in a statement. “The UK banking system is well capitalized and funded, and remains safe and sound.”
How UBS and Credit Suisse will fit together
The global headquarters of UBS and Credit Suisse are just 300 meters apart in Zurich, but the banks’ fortunes have been on very different paths recently. UBS shares have risen 15% in the past two years and posted a profit of $7.6 billion in 2022. It had a stock market value of about $65 billion on Friday, according to Refinitiv.
Credit Suisse shares have lost 84% of their value over the same period, posting a loss of $7.9 billion last year. It was worth just $8 billion at the end of last week.
Dating back to 1856, Credit Suisse traces its roots to the Schweizerische Kreditanstalt (SKA), which was created to finance the expansion of the railway network and the industrialization of Switzerland.
In addition to being the second largest bank in Switzerland, it looks after the wealth of many of the world’s richest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, 17,000 of them in Switzerland.
The Swiss National Bank said it would provide a loan of 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to increase liquidity.
UBS CEO Ralph Hamers will serve as chief executive of the combined bank and Kelleher will serve as chairman.
The acquisition will strengthen UBS’s position as the world’s leading wealth manager with $5 trillion in invested assets and further its ambition to grow in the Americas and Asia. UBS said it expects to generate cost savings of $8 billion per year by 2027. Investment bank Credit Suisse is in the crosshairs.
“Let me be clear. UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.
The CNN Wire
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