UBS will take over its troubled Swiss rival Credit Suisse for $3.25 billion after crisis talks on Sunday aimed at preventing the beleaguered bank from triggering a wider international banking crisis.
The government said the takeover of Switzerland’s largest bank by its second largest bank was vital to prevent irreparable economic turmoil spreading across the country and beyond.
The move was welcomed in Washington, Brussels and London as it would support financial stability.
After a dramatic day of talks at the finance ministry in the capital Bern – and with the clock ticking down before markets in Asia and then Europe open on Monday – the acquisition details were announced at a press conference.
Swiss President Alain Berset was accompanied by Swiss Finance Minister and the heads of the Swiss National Bank (SNB), the central bank and financial regulator FINMA, along with UBS Chairman Kolm Kelleher and his Credit Suisse counterpart Axel Lehman.
The wealthy Alpine nation is renowned for its banking prominence and Berset said the acquisition was “the best solution to restore confidence which has been lacking in financial markets recently”.
If Credit Suisse goes into freefall, it would have “incalculable consequences for the country and for international financial stability”, he said.
Credit Suisse said in a statement that UBS would take it to “merger consideration of three billion Swiss francs ($3.25 billion)” in which Credit Suisse shareholders would receive one UBS share for 22.48 Credit Suisse shares.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” Lehman said.
‘Huge collateral damage’ risk
Finance Minister Karin Keller-Sutter said bankruptcy for Credit Suisse could cause “irreparable economic upheaval” and “enormous collateral damage” for the Swiss financial market, adding to the “risk of contagion” for other banks, including UBS. not to mention.
He added that the acquisition “has laid the foundation for greater stability in Switzerland and internationally”.
The deal was warmly received internationally, with European Central Bank chief Christine Lagarde welcoming the “swift action”.
The decisions taken in Bern “are important for stabilizing market conditions and ensuring financial stability. The euro area banking sector is resilient, with strong capital and liquidity conditions.”
Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen said in a joint statement: “We welcome today’s announcements by the Swiss authorities to support financial stability.”
Britain also said the deal would “support financial stability”.
Keller-Sutter said that her American and British colleagues “really feared that Credit Suisse might go bankrupt with all the losses”.
The SNB announced that 100 billion Swiss francs of liquidity would be available.
Keller-Sutter insisted that the deal was “a business solution and not a bailout.”
UBS Chairman Kelleher said: “We are committed to making this transaction a great success.
“It is absolutely essential to the financial structure of Switzerland.
“UBS will remain rock solid,” he insisted.
too big to fail?
Like UBS, Credit Suisse was one of 30 banks around the world that are considered globally systemically important banks – so important to the international banking system that they are considered too big to fail.
But the market moves seemed to see the bank as a weak link in the chain.
Credit Suisse’s share price plunged more than 30 percent on Wednesday to a new record low of 1.55 Swiss francs, amid fears of contagion following the collapse of two US banks. The SNB stepped in overnight with a $54 billion lifeline.
After recovering some ground on Thursday, its shares closed down eight percent at 1.86 Swiss francs on Friday as the Zurich-based lender struggled to retain investor confidence.
In 2022, the bank faces a net loss of $7.9 billion and expects a “substantial” pre-tax loss this year.
Credit Suisse shareholders will receive 0.76 Swiss francs per share, UBS said in a statement.
Credit Suisse’s share price closed at 1.86 Swiss francs on Friday, after a sharp drop in the stock market last week, valuing the bank at just over $8.7 billion.
Credit Suisse’s share price has fallen from 12.78 Swiss francs in February 2021, unable to budge due to a series of scandals.
The Swiss bank employees’ union said there is “much at stake” for the 17,000 Credit Suisse employees “and therefore also for our economy”.
In addition, thousands of jobs outside the banking industry were potentially at risk.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)