Switzerland’s biggest bank, UBS, has agreed to buy struggling rival Credit Suisse in an emergency bailout deal aimed at stemming a financial market panic that saw the collapse of two American banks earlier this month.
“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the bailout 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 market close on Friday. Credit Suisse shareholders will be largely wiped out, getting just 0.76 Swiss francs in UBS shares for shares that were worth 1.86 Swiss francs on Friday.
Exceptionally, the deal does not require shareholder approval after the Swiss government agreed to change the law to remove uncertainty from the deal.
Credit Suisse (CS) had lost the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But the trust slumped last week after it admitted a “material weakness” in its books and the liquidation of Silicon Valley Bank and Signature Bank stoked fears of weaker institutions at a time when rising interest rates have eroded the value of some financial assets.
The 167-year-old bank’s shares fell 25% during the week, money was flowing out of the mutual funds it manages, and at one point account holders were withdrawing more than $10 billion in deposits a day, the Financial Times reported. A nearly $54 billion emergency loan from the Swiss National Bank did not stop the bleeding.
But it “built a bridge” into the weekend so a rescue can be assembled, Swiss officials said Sunday night.
“This acquisition is attractive to UBS shareholders, but let’s be clear that for Credit Suisse this is an emergency rescue,” UBS Chairman Colm Kelleher told reporters.
“It is absolutely essential for the Swiss financial structure and … for global finance,” he told reporters.
Desperate to prevent the collapse from spreading to the global financial system, Swiss authorities on Monday launched a search for a private-sector solution with limited state support while considering Plan B – full or partial nationalization.
“Given the recent exceptional and unprecedented circumstances, the announced merger represents the best possible outcome,” Credit Suisse chairman Axel Lehmann said in a statement.
“This has been an extremely challenging time for Credit Suisse, and while the team has worked tirelessly to address a number of significant legacy issues and implement its new strategy, it is imperative that we reach a solution today that delivers a sustainable outcome.”
The emergency coup was agreed after days of heated negotiations involving financial regulators from Switzerland, the United States and the United Kingdom. UBS ( UBS ) and Credit Suisse are among the top 30 banks in the global financial system, with a combined total of nearly $1.7 trillion in assets.
Financial market regulators around the world encouraged UBS’s actions in its takeover of Credit Suisse.
U.S. officials announced their support for the operation and worked closely with the Swiss National Bank to facilitate the takeover.
“We welcome the announcements made by the Swiss authorities today to support financial stability,” US Treasury Secretary Janet Yellen and US Federal Reserve Chairman Jerome Powell said in a joint statement. “U.S. Capital and Liquidity Positions. The Banking System is Strong and the U.S. Financial System is Resilient.”
European Central Bank President Christine Lagarde said the banking sector remains resilient, but the ECB is ready to help banks keep enough cash to fund their operations if the need arises.
“I am pleased with the quick actions and decisions of the Swiss authorities,” Lagarde said. “They are important in restoring market conditions and ensuring financial stability.
The Bank of England said it welcomed the steps taken by the Swiss authorities to “support financial stability”.
“We have been working closely with international counterparts throughout the preparation of today’s announcements and will continue to support their implementation,” it said in a statement. “The UK banking system is well capitalized and funded and remains safe and sound.”
The global headquarters of UBS and Credit Suisse are only 300 meters from each other in Zurich, but the fortunes of the banks have recently been very different. Shares in UBS have risen 15% over the past two years, and it posted a $7.6 billion profit in 2022. Its stock market capitalization was about $65 billion on Friday, according to Refinitiv.
Shares in Credit Suisse have lost 84 percent of their value over the same period, and last year posted a $7.9 billion loss. It was worth just $8 billion at the end of last week.
Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was founded to finance the expansion of the railway network and the industrialization of Switzerland.
In addition to being Switzerland’s second largest bank, it looks after the assets of many of the world’s richest people and offers global investment banking services. At the end of 2022, it employed more than 50,000 employees, 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.
UBS CEO Ralph Hamers will serve as CEO of the combined bank, and Kelleher will serve as chairman.
The acquisition strengthens UBS’s position as the world’s leading wealth manager with $5 trillion in assets under management and reinforces its goal to grow in the Americas and Asia. UBS said it will achieve $8 billion in annual cost savings by 2027. Credit Suisse’s investment bank is in a crossroad.
“Let me be clear. UBS intends to shrink Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.