UBS has agreed to buy Credit Suisse for $3.25 billion after a frenetic weekend of negotiations brokered by Swiss regulators to protect its banking system and try to avert a crisis. spread in global financial markets.
The historic deal comes after five days in which the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatens to topple the country’s second-largest lender.
An emergency SFr50 billion ($54 billion) line of credit provided by the Swiss National Bank on Wednesday failed to stem the steep decline in share prices, which has been exacerbated by the market turmoil. wider due to the sudden collapse earlier this month of California-based Silicon Valley Bank.
Swiss President Alain Berset said at a news conference in Bern on Sunday evening: “On Friday, the liquidity outflows and market volatility suggested there was no longer any possibility of restoring market confidence. , and a quick and stable solution is absolutely necessary.” “The solution is UBS taking over Credit Suisse.”
UBS will pay about SFr 0.76 for a share in its own shares, worth SFr 3 billion, up from a price of SFr 0.25 SFr earlier on Sunday worth about $1 billion that was dropped by the board. Credit Suisse refused. However, the offer is still far below Credit Suisse’s closing price of 1.86 SFr on Friday.
As part of the deal, the SNB has agreed to provide a liquidity limit of SFr100 billion backed by a federal default guarantee to UBS, the Swiss finance ministry said. The government is also offering a loss guarantee of up to SFr 9 billion, but only after UBS has suffered its first loss of SFr 5 billion on certain asset categories.
The combination created one of the largest banks in Europe. UBS has $1.1 trillion in total assets on its balance sheet and Credit Suisse has $575 billion.
“This is not a bailout. This is a commercial solution,” said Swiss Finance Minister Karin Keller-Sutter. “The bankruptcy will cause massive collateral damage in the Swiss financial markets and risk of international contagion.
“The US and UK are very grateful for this solution. . . they are really scared about Credit Suisse bankruptcy,” she added.
The takeover would mean the end for the 167-year-old bank whose headquarters face fierce rival UBS on Zurich’s Paradeplatz square.
It experienced a disastrous couple of years for Credit Suisse marked by dual crises involving Greensill Capital expert financial group and Archegos family office in 2021 resulting in billions of dollars in losses and severely damaging the bank’s reputation for risk management.
Under the terms of the agreement, some of Credit Suisse’s SFr16 billion worth of additional Tier 1 capital bonds, which are designed to bear losses when institutions are in trouble, and transfer the risk of bank failure from borrowers. pay taxes to investors, will be written off.
Credit Suisse said in its statement on Sunday night that Swiss market regulator Finma had determined the bond would be “zero written off”. About 1 billion SFr other capital was also wiped out.
The Swiss Federal Council – the government’s executive body – will issue an emergency order to remove regulatory and regulatory barriers to fast closings. Swiss MPs will eventually have to approve the process – albeit retroactively; a vote will be held within the next six months.
Credit Suisse CEO Ulrich Körner was unable to draw a line for the bank’s crises during his eight-month tenure, with a restructuring plan that includes withdrawing from investment banking and cutting 9,000 jobs failed to convince investors.
Customers withdrew SFr 111 billion from the pool in the last three months of last year. Deposits from Credit Suisse amounted to SFr 10 billion a day at the end of last week, the Financial Times previously reported.
Shares of Credit Suisse have fallen more than 74% over the past year, bringing its market capitalization on Friday to just $8 billion, dwarfed by UBS’s roughly $57 billion market cap.
For UBS, the deal strengthens its position as the world’s largest asset manager, with operations spanning the United States, Europe, the Middle East and Asia. The combined entity will have $5 trillion in assets invested globally.
“UBS will remain strong,” said UBS President Colm Kelleher, who will continue to lead the organization in conjunction with chief executive officer Ralph Hamers.
Kelleher said that Credit Suisse’s Swiss division is “a good asset that we are very determined to keep” and that it is too early to give an estimate of the number of job cuts across the various divisions that UBS has suffered. are buying back.
In 2022, UBS makes $7.6 billion in profit while Credit Suisse plunges to a $7.9 billion loss, wiping out all of the previous decade’s earnings
