UBS agreed to buy its embattled rival Credit Switzerland for 3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a key role in the deal as governments scramble to stem a contagion threatening the global banking system.
“With the acquisition of Credit Suisse by UBS, a solution has been found to safeguard financial stability and protect the Swiss economy in this exceptional situation,” said a statement from the Swiss National Bank, which noted that the central bank was cooperating with the Swiss government and the Swiss financial market supervisory authority to bring about the combination of the country’s two largest banks.
Under the terms of the deal, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they hold.
“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is a bailout. We have structured a transaction that will preserve the value remaining in the company while limiting our downside exposure.” said UBS chairman Colm Kelleher in a statement.
The combined bank will have $5 trillion in assets under management, according to UBS.
“We are determined to make this deal a great success. There are no options in this,” Kelleher said when asked at the press conference if the bank could pull out of the deal. “This is absolutely essential for Switzerland’s financial structure and … for global finance.”
The Swiss National Bank has pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the acquisition. The Swiss government also provided a guarantee to assume losses of up to CHF 9 billion on certain assets above a preset threshold “to mitigate any potential risk to UBS,” according to a separate government statement.
“This is a commercial solution and not a bailout,” Karin Keller-Sutter, the Swiss finance minister, said at a press conference on Sunday.
The UBS deal was pieced together before markets reopened for trading on Monday after shares of Credit Suisse registered their worst weekly decline since the start of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) made last week by the Swiss central bank in a bid to halt the decline and restore confidence in the bank.
News of the deal was welcomed by Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell in a statement. “The capital and liquidity positions of the US banking system are strong and the US financial system is resilient. We have been in close contact with our international counterparts to support its implementation,” they said.
Credit Suisse has already suffered a series of losses and scandals, and in the past two weeks sentiment has been shaken again as US banks reeled after the collapses of Silicon Valley Bank and Signature Bank.
The US regulators’ safety net of uninsured deposits with the failing banks and the creation of a new financing facility for troubled financial institutions failed to stem the shock and threaten to engulf more banks in the US and abroad.
Axel Lehmann, chairman of Credit Suisse, said at the press conference that the financial instability caused by the collapse of US regional banks hit the bank at the wrong time.
Despite the involvement of regulators in the peg, the deal gives UBS autonomy to manage the acquired assets as it sees fit, which could lead to significant job losses, sources told CNBC’s David Faber.
Credit Suisse’s size and potential impact on the global economy far exceeds that of regional banks in the US, which are pressuring Swiss regulators to find a way to bring the country’s two largest financial institutions together. Credit Suisse’s balance sheet is about twice the size of Lehman Brothers when it collapsed, at about 530 billion Swiss francs at the end of 2022. It is also much more globally connected, with multiple international subsidiaries, creating an orderly management of Credit Suisse’s balance sheet. situation even more important.
Bringing the two rivals together was not without a struggle, but the push to avert a systemic crisis eventually won out. According to multiple media reports, UBS initially offered to buy Credit Suisse for about $1 billion on Sunday. Credit Suisse reportedly objected to the offer, arguing it was too low and would harm shareholders and employees, those in the know told Bloomberg.
On Sunday afternoon, UBS was in talks to buy the bank for “significantly” more than 1 billion Swiss francs, sources Faber told CNBC. He said the price of the deal had risen during the day’s negotiations.
Credit Suisse lost about 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that the outflows have yet to be reversed. It reported a full-year net loss of CHF 7.3 billion for 2022 and expects a further “significant” loss in 2023.
The bank had previously announced a major strategic overhaul to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.
— CNBC’s Elliot Smith contributed to this report.