UBS is taking over its troubled Swiss rival Credit Suisse for $3.25 billion after crunch talks on Sunday to prevent the stricken bank from triggering a wider international banking crisis.
The government said the deal involving Switzerland’s largest bank to take over the second largest was vital to prevent irreparable economic turmoil from spreading across the country and beyond.
The move was welcomed in Washington, Brussels and London as one that would support financial stability.
After a dramatic day of talks at the finance ministry in the capital Bern – and as the clock ticks for markets to open on Monday in Asia and then Europe – details of the takeover were announced at a press conference.
Swiss President Alain Berset was flanked by UBS Chairman Colm Kelleher and his Credit Suisse counterpart Axel Lehmann, along with Swiss Finance Minister and central bank heads from the Swiss National Bank (SNB) and financial regulator FINMA.
The wealthy Alpine nation is known for its prominent position in the banking industry and Berset said the acquisition was the “best solution to restore the confidence that has been missing in the financial markets of late”.
If Credit Suisse went into free fall, it would have had “incalculable consequences for the country and for international financial stability,” he said.
Credit Suisse said in a statement that UBS would acquire it for “a merger fee of three billion Swiss francs ($3.25 billion),” with Credit Suisse shareholders receiving one UBS share for 22.48 Credit Suisse shares.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best outcome available,” said Lehmann.
Risk of ‘massive collateral damage’
Finance Minister Karin Keller-Sutter said Credit Suisse’s failure could have caused “irreparable economic turmoil” and “massive collateral damage” to the Swiss financial market, not to mention the “risk of contagion” to other banks, including UBS yourself.
The acquisition has “laid the foundations for greater stability, both in Switzerland and internationally,” she said.
The deal was warmly received internationally, with European Central Bank head Christine Lagarde welcoming the “quick action”.
The decisions taken in Bern “are essential for restoring orderly market conditions and ensuring financial stability. The euro area banking sector is resilient, with strong capital and liquidity positions,” she said.
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: “We welcome the announcements made by Swiss authorities today to support financial stability.”
Britain also said the deal would “support financial stability”.
Keller-Sutter said her American and British colleagues “really feared a bankruptcy of Credit Suisse, with all the losses that entailed”.
The SNB announced that 100 billion Swiss francs in liquidity would be available.
Keller-Sutter insisted the deal was “a commercial solution and not a bailout”.
UBS Chairman Kelleher added: “We are determined to make this deal a great success.
“This is absolutely essential for Switzerland’s financial structure.
“UBS will remain rock solid,” he insisted.
Too big to fail?
Like UBS, Credit Suisse was one of 30 banks around the world considered globally systemically important – so important to the international banking system that they are considered too big to fail.
But the market movement seemed to suggest that the bank was seen as a weak link in the chain.
Amid contagion threats following the collapse of two US banks, Credit Suisse’s share price had fallen more than 30 percent on Wednesday to a new all-time low of 1.55 Swiss francs. That saw the SNB step in overnight with a $54 billion lifeline.
After recovering some ground on Thursday, shares closed up eight percent on Friday at 1.86 Swiss francs as the Zurich-based lender struggled to maintain investor confidence.
In 2022, the bank suffered a net loss of $7.9 billion and expects a “significant” pre-tax loss this year.
A statement from UBS said Credit Suisse shareholders would get 0.76 Swiss francs per share.
After heavy falls in the stock market last week, Credit Suisse’s share price closed Friday at 1.86 Swiss francs, valuing the bank at just over $8.7 billion.
Credit Suisse’s share price has fallen from 12.78 Swiss francs in February 2021 due to a series of scandals it has been unable to shake.
The Swiss Bank Employees Association said there is “a lot at stake” for Credit Suisse’s 17,000 employees, “and therefore for our economy”.
In addition, tens of thousands of jobs outside the banking sector may have been at stake, it added.
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