Switzerland’s biggest bank, UBS, has agreed to buy struggling rival Credit Suisse in an emergency bailout deal aimed at stemming financial market panic sparked by the failure of two US banks earlier this year. month.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement. “This takeover was made possible thanks to the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority and the Swiss National Bank,” the central bank added.
He said the rescue 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’s value at the close of trading on Friday. Credit Suisse shareholders will be largely wiped out, receiving just one UBS share for every 22.5 Credit Suisse shares they own. Exceptionally, the deal will not need shareholder approval after the Swiss government agreed to change the law so it can close quickly.
Credit Suisse (CS) had been losing investor and client confidence for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence plummeted last week after it acknowledged a “material weakness” in its accounting and as the demise of Silicon Valley Bank and Signature Bank sowed fear of weaker institutions at a time when the soaring interest rates undermined the value of some financial assets.
Shares in the 167-year-old bank fell 25% over the week as money poured in from the investment funds it manages and at one point account holders were withdrawing deposits of more $10 billion a day, reported the Financial Times. An emergency loan from the Swiss National Bank failed to stop the bleeding.
Desperate to prevent the meltdown from spreading to the global financial system on Monday, Swiss authorities had pushed for a private sector bailout, with limited state support, while apparently considering plan B – full nationalization or partial.
The emergency takeover was decided after several days of frantic negotiations involving financial regulators in Switzerland, the United States and the United Kingdom. UBS (UBS) and Credit Suisse are among the 30 largest banks in the global financial system and together they hold nearly $1.7 trillion in assets.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best outcome available,” Credit Suisse Chairman Axel Lehmann said in a statement.
“It has been an extremely difficult time for Credit Suisse and although the team has worked tirelessly to resolve many legacy issues and implement its new strategy, we are compelled today to find a solution that offers a lasting result.”
The global headquarters of UBS and Credit Suisse are only 300 meters apart in Zurich, but the banks’ fortunes have recently taken very different paths. UBS shares have climbed 15% over the past two years, and it posted a profit of $7.6 billion in 2022. It had a market value of around $65 billion on Friday, according to Refinitiv.
Credit Suisse shares have lost 84% of their value over the same period and last year posted a loss of $7.9 billion. He was only worth $8 billion at the end of last week.
Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was created to finance the expansion of the rail network and the industrialization of Switzerland.
In addition to being the second largest bank in Switzerland, it manages the wealth of many of the world’s wealthiest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, including 17,000 in Switzerland.
The Swiss National Bank said it would provide a 100 billion Swiss franc ($108 billion) loan to UBS and Credit Suisse to boost liquidity.