Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.
“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. “This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority and the Swiss National Bank,” the central bank added.
It said the rescue would “secure 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 was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving just 1 UBS share for 22.5 Credit Suisse shares they own. Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law so that it can be completed rapidly.
(CS) had been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.
Shares in the 167-year-old bank fell 25% over the week, money poured from investment funds it manages and at one point account holders were withdrawing deposits of more than $10 billion per day, the Financial Times reported. An emergency loan from the Swiss National Bank failed to stop the bleeding.
Desperate to prevent the meltdown spreading through the global financial system on Monday, Swiss authorities had pushed hard for a private sector rescue, with limited state support, while reportedly considering Plan B — a full or partial nationalization.
The emergency takeover was agreed to after a days of frantic negotiations involving financial regulators in Switzerland, the United States and United Kingdom. UBS
(UBS) and Credit Suisse rank among the 30 most important banks in the global financial system, and together they have almost $1.7 trillion in assets.
“Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available 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 many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”
The global headquarters of UBS and Credit Suisse are just 300 yards apart in Zurich but the banks’ fortunes have been on very different paths recently. Shares of UBS have climbed 15% in the past two years, and it booked a profit of $7.6 billion in 2022. It had a stock market value of about $65 billion on Friday, according to Refinitiv.
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.
Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was set up to finance the expansion of the railroad network and industrialization of Switzerland.
In addition to being Switzerland’s second biggest bank, it looks after the wealth of many of the world’s richest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, 17,000 of those in Switzerland.
The Swiss National Bank said it would provide a loan of 100 billion Swiss francs ($108 billion) to UBS and Credit Suisse to boost liquidity.