UBS agreed to purchase its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a key part within the deal as governments looked to stem a contagion threatening the worldwide banking system.
“With the takeover of Credit Suisse by UBS, an answer has been found to secure financial stability and protect the Swiss economy on this exceptional situation,” read a press release from the Swiss National Bank, which noted the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring in regards to the combination of the country’s two largest banks.
The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for each 22.48 Credit Suisse shares they hold.
“This acquisition is attractive for UBS shareholders but, allow us to be clear, so far as Credit Suisse is worried, that is an emergency rescue. We’ve structured a transaction which can preserve the worth left within the business while limiting our downside exposure,” said UBS Chairman Colm Kelleher in a press release.
The combined bank may have $5 trillion of invested assets, in keeping with UBS.
“We’re committed to creating this deal a terrific success. There aren’t any options on this,” Kelleher said when asked through the press conference if the bank could back out of the deal. “This is totally essential to the financial structure of Switzerland and … to global finance.”
The Swiss National Bank pledged a loan of as much as 100 billion Swiss francs ($108 billion) to support the takeover. The Swiss government also granted a guarantee to assume losses as much as 9 billion Swiss francs from certain assets over a preset threshold “with a view to reduce any risks for UBS,” said a separate government statement.
“This can be a industrial solution and never a bailout,” said Karin Keller-Sutter, the Swiss finance minister, in a press conference Sunday.
The united statesdeal was scrambled together before markets reopened for trading Monday after Credit Suisse shares logged their worst weekly decline for the reason that onset of the coronavirus pandemic. The losses got here despite a recent loan of as much as 50 billion Swiss francs ($54 billion) granted from the Swiss central bank last week, in an effort to halt the slide and restore confidence within the bank.
News of the deal was welcomed by Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell in a press release. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. economic system is resilient. We’ve been in close contact with our international counterparts to support their implementation,” they said.
Credit Suisse had already been battling a string of losses and scandals, and within the last two weeks, sentiment was rocked again as banks within the U.S. reeled from the collapse of Silicon Valley Bank and Signature Bank.
U.S. regulators’ backstop of uninsured deposits within the failed banks and the creation of a recent funding facility for troubled financial institutions didn’t stem the shock and is threatening to envelop more banks each within the U.S. and abroad.
Credit Suisse Chairman Axel Lehmann said within the press conference that the financial instability led to by the collapsed U.S. regional banks hit the bank on the improper time.
Despite regulators’ involvement within the pairing, the deal gives UBS autonomy to run the acquired assets because it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.
Credit Suisse’s scale and potential impact on the worldwide economy is far greater than U.S. regional banks, which pressured Swiss regulators to search out a approach to bring the country’s two largest financial institutions together. Credit Suisse’s balance sheet is around twice the scale of Lehman Brothers’ when it collapsed, at around 530 billion Swiss francs as of the tip of 2022. It’s also way more globally interconnected, with multiple international subsidiaries — making an orderly management of Credit Suisse’s situation much more vital.
Bringing the 2 rivals together was not without its struggles, but pressure to stave off a systemic crisis won out in the long run. UBS initially offered to purchase Credit Suisse for around $1 billion Sunday, in keeping with multiple media reports. Credit Suisse reportedly balked on the offer, arguing it was too low and would hurt shareholders and employees, individuals with knowledge of the matter told Bloomberg.
By Sunday afternoon, UBS was in talks to purchase the bank for “substantially” greater than 1 billion Swiss francs, sources told CNBC’s Faber. He said the value of the deal increased throughout the day’s negotiations.
Credit Suisse lost around 38% of its deposits within the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net lack of 7.3 billion Swiss francs for 2022 and expects an additional “substantial” loss in 2023.
The bank had previously announced a large strategic overhaul in a bid to deal with these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking on in July.
—CNBC’s Elliot Smith contributed to this report.