UBS To Aid Endangered Credit Suisse By Acquiring It For USD 3.2B

Following crunch talks on Sunday (Mar 19), UBS will acquire its troubled Swiss rival Credit Suisse for $3.23 billion, preventing the bank from triggering a wider international banking crisis.

The government stated that the deal involving Switzerland's largest bank acquiring the second-largest was critical to preventing irreparable economic turmoil from spreading throughout the country and beyond.

The move was hailed as beneficial to financial stability in Washington, Brussels, and London.

The takeover details were announced at a press conference following a dramatic day of talks at the finance ministry in Bern, and with the clock ticking ahead of the markets opening on Monday in Asia and then in Europe.

Swiss President Alain Berset was accompanied by UBS chairman Colm Kelleher and Credit Suisse counterpart Axel Lehmann, as well as the Swiss finance minister and heads of the Swiss National Bank (SNB) central bank and the financial regulator FINMA.

Berset described the takeover as the "best solution for restoring the confidence that has been lacking in the financial markets recently" in the wealthy Alpine nation.

If Credit Suisse had gone bankrupt, the consequences would have been "incalculable for the country and for international financial stability," he said.

Credit Suisse announced that UBS would acquire it for "a merger consideration of 3 billion Swiss francs (US$3.23 billion)," with Credit Suisse shareholders receiving one UBS share for every 22.48 Credit Suisse shares.

"Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome," said Lehmann.

According to Finance Minister Karin Keller-Sutter, Credit Suisse's bankruptcy could have caused "irreparable economic turmoil" and "huge collateral damage" to the Swiss financial market, not to mention the "risk of contagion" for other banks, including UBS.

The takeover "has laid the foundation for greater stability both in Switzerland and globally," she said.

The deal was warmly received internationally, with European Central Bank chief Christine Lagarde welcoming the "swift action".

Decisions made in Bern "are critical for restoring market order and ensuring financial stability. The eurozone banking sector is strong, with ample capital and liquidity ", she explained.

In a joint statement, Fed Chair Jerome Powell and Treasury Secretary Janet Yellen said, "We welcome the announcements made today by the Swiss authorities to support financial stability."

Britain too said the deal would "support financial stability".

Keller-Sutter stated that her colleagues in the United States and the United Kingdom "really feared" that Credit Suisse would go bankrupt, resulting in massive losses.

The SNB announced the availability of 100 billion Swiss francs in liquidity.

Keller-Sutter insisted the deal was "a commercial solution and not a bailout".

"We are committed to making this deal a great success," said UBS chairman Kelleher. This is absolutely necessary for Switzerland's financial structure.

"UBS will stand firm," he insisted.

Credit Suisse, like UBS, was one of 30 banks worldwide designated as Global Systemically Important Banks, meaning they are so important to the international banking system that they are considered too big to fail.

However, market movement appeared to indicate that the bank was perceived as a weak link in the chain.

Credit Suisse's share price fell more than 30% on Wednesday to a new record low of 1.55 Swiss francs, owing to fears of contagion following the failure of two US banks. The SNB stepped in with a $54 billion lifeline almost immediately.

After regaining some ground on Thursday, its shares fell 8% on Friday to 1.86 Swiss francs as the Zurich-based lender struggled to maintain investor confidence.

The bank lost $7.9 billion in 2022 and expects a "substantial" pre-tax loss this year.

According to a UBS statement, Credit Suisse shareholders will receive 0.76 Swiss francs per share.

Following a week of steep stock market declines, Credit Suisse's share price closed Friday at 1.86 Swiss francs, valuing the bank at just over US$8.7 billion.

Credit Suisse's share price has fallen from 12.78 Swiss francs in February 2021 due to a string of scandals that the company has been unable to shake.

The Swiss Bank Employees Association said there was "a great deal at stake" for the 17,000 Credit Suisse staff, "and therefore also for our economy".

Furthermore, tens of thousands of jobs outside of the banking industry could be jeopardised, according to the report.