UBS to buy Credit Suisse for $3.2 Billion in bailout operation

UBS
  • UBS has agreed to buy struggling rival Credit Suisse for 3 billion Swiss francs ($3.2 billion).
  • The combination of the country’s two largest banks was backed by the Swiss National Bank, which worked in conjunction with the Swiss government and the Swiss Financial Market Supervisory Authority.
  • The acquisition means that Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own.
  • UBS Chairman Colm Kelleher stressed that the Credit Suisse acquisition is an emergency bailout. The combined bank will have $5 trillion in invested assets.

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Swiss bank UBS agreed to buy struggling rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) on Sunday, in a deal that engaged Swiss regulators and governments to avert a possible crisis in the global banking system.

The combination of the country’s two largest banks was backed by the Swiss National Bank, which worked in conjunction with the Swiss government and the Swiss Financial Market Supervisory Authority. The acquisition means that Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own.

The Swiss National Bank said in a statement, as reported by CNBC: “With the acquisition of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation.”

While the transaction is attractive to UBS shareholders, UBS Chairman Colm Kelleher stressed that the Credit Suisse acquisition is an emergency bailout. The combined bank will have $5 trillion in invested assets. Kelleher said in a statement: “This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency bailout. We have structured a transaction that will preserve the value remaining in the business while limiting our downside exposure.”

The Swiss National Bank promised a loan of up to 100 billion Swiss francs ($108 billion) to support the acquisition, and the Swiss government also provided a guarantee to bear losses of up to 9 billion Swiss francs on certain assets above a preset threshold. For her part, Swiss Finance Minister Karin Keller-Sutter told a press conference on Sunday, “this is a trade solution and not a bailout.

Despite the involvement of regulators in the merger, UBS will have the autonomy to manage the acquired assets as it sees fit. This could mean significant job cuts, sources close to CNBC’s David Faber said.

So then, UBS secured its deal before markets reopened on Monday after Credit Suisse shares suffered their worst weekly drop during the pandemic. Despite a 50 billion Swiss franc loan from the Swiss central bank last week, the losses continued.

Credit Suisse Chairman Axel Lehmann explained that financial instability caused by failed regional banks in the United States hit his bank at an inopportune time. Credit Suisse’s scale and potential impact on the global economy is far greater than that of regional US banks, prompting Swiss regulators to seek a way to unite the country’s two largest financial institutions.

Credit Suisse’s balance sheet is roughly twice the size of Lehman Brothers when it collapsed, at around 530 billion Swiss francs at the end of 2022. Furthermore, it is much more globally interconnected, with several international subsidiaries, making makes orderly management of Credit Suisse’s situation even more important.

Now, the merger of the two rivals was not without difficulties, but the pressure to avoid a systemic crisis won in the end. According to various media reports, UBS initially offered to buy Credit Suisse for around $1 billion on Sunday. However, Credit Suisse reportedly rejected the offer, arguing that it was too low and would hurt shareholders and employees, according to people familiar with the matter, cited by Bloomberg.

By Sunday afternoon, UBS was in talks to buy the bank for “substantially” more than 1 billion Swiss francs, sources told CNBC. According to CNBC’s Faber, the price of the deal increased during the day’s negotiations.

Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that the outflows have not yet reversed. It reported a net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.

It should be noted that before the merger, Credit Suisse had already been battling a series of losses and scandals, and in the last two weeks, the sentiment was affected again by the collapse of Silicon Valley Bank and Signature Bank in the US.

The bank had previously announced a major strategic shakeup to address these chronic problems, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

Finally, the news of the Credit Suisse and UBS merger was welcomed by Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell, who stated the capital and liquidity position of the US banking system. The US is strong and the US financial system is resilient. In addition, they said they have been in close contact with their international counterparts to support the implementation of the agreement.