London (CNN) UBS, Switzerland’s largest bank, agreed to buy it Ailing rival Credit Suisse The emergency bailout deal was aimed at stemming the financial market panic unleashed by the failure of two US banks earlier this month.
“UPS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement on Sunday. It said the rescue would “protect financial stability and the Swiss economy”.
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was valued at when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares worth 1.86 Swiss francs on Friday. Owners of $17 billion worth of “extra tier one” bonds – the riskiest class of bank debt – could lose it all, Swiss regulators said.
Unusually, the deal does not require shareholder approval after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Swiss debt (CS) Losing the trust of investors and customers over the years. In 2022, it posted its worst loss since the global financial crisis. But confidence plummeted last week after it admitted to “material weakness” in its accounting and the demise of Silicon Valley Bank and Signature Bank fueled fears of weaker institutions at a time when rising interest rates undermine the value of some financial assets.
Shares of the 167-year-old bank fell 25% in the week as money poured out of the investment 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 failed to stem the bleeding.
But Swiss officials said on Sunday night that they had “bridged” until the end of the week to allow rescue efforts to be coordinated.
“This acquisition is attractive to UBS shareholders, but, for Credit Suisse, it is an urgent recovery,” UBS chairman Colm Kelleher told reporters.
“This is absolutely essential for Switzerland’s financial architecture and … for global finance,” he told reporters.
Desperate to prevent the spread of the global financial system on Monday, Swiss authorities began a search for a private-sector solution, with limited state support, reportedly considering Plan B — full or partial nationalization.
“In the recent unusual and unprecedented circumstances, the announced merger represents the best available decision,” Credit Suisse Chairman Axel Lehman said in a statement.
“This is a very challenging time for Credit Suisse, and while the team has worked tirelessly to resolve a number of significant legacy issues and implement its new strategy, we are compelled today to reach a solution that delivers a lasting result.”
The emergency takeover was agreed after a day of frantic negotiations involving financial regulators in Switzerland, the United States and the United Kingdom. UPS (UPS) And Credit Suisse ranks among the 30 most important banks in the global financial system, with assets of nearly $1.7 trillion.
Regulators appreciate the acquisition
Financial market regulators around the world cheered UBS’s move to take over Credit Suisse.
US officials said they supported the move and worked closely with the Swiss central bank to facilitate the acquisition.
“We welcome today’s announcements by the Swiss authorities to support financial stability,” US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said in a joint statement. “U.S. Capital and Liquidity Levels. 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 hold enough cash to fund their operations if needed.
“I welcome the swift action and the decisions taken by the Swiss authorities,” Lagarde said. “They are instrumental in restoring proper market conditions and ensuring financial stability.
The Bank of England said it welcomed the measures taken by Swiss authorities “to support financial stability”.
“We have been closely engaged with international counterparts throughout the preparations for 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 is safe and sound.”
How UBS and Credit Suisse fit together
The global headquarters of UBS and Credit Suisse are just 300 yards away in Zurich, but the banks’ fortunes have recently taken a different path. Shares of UBS have risen 15% over the past two years, and are forecast to generate $7.6 billion in profits by 2022. According to Refinitiv, the stock had a market capitalization of $65 billion on Friday.
Credit Suisse shares have lost 84% of their value over the same period, and last year it posted a loss of $7.9 billion. It was worth just $8 billion at the end of last week.
Since 1856, Credit Suisse has its roots in the Schweizerische Kreditenstalt (SKA), which was set up to finance the expansion and industrialization of Switzerland’s railway network.
As well as being Switzerland’s second largest bank, it oversees the wealth of many of the world’s richest people and provides global investment banking services. It will have more than 50,000 employees by the end of 2022, 17,000 of them in Switzerland.
The Swiss National Bank said it would lend 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to boost liquidity.
UBS Chief Executive Ralph Hammers will be CEO of the combined bank, and Kelleher will serve as chairman.
The acquisition will strengthen UBS’s position as the world’s leading wealth manager with $5 trillion in invested assets, and boost its growth in the Americas and Asia. UBS said it will generate $8 billion in annual cost savings by 2027. Credit Suisse’s investment bank is at a crossroads.
“Let me be clear. UBS wants to reduce Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.