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 Sunday. 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 the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday. Owners of $17 billion worth of "additional tier one" bonds — a riskier class of bank debt — will lose everything, Swiss regulators said.
Extraordinarily, the deal will not need the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Credit Suisse 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 of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.
But it did "build a bridge" to the weekend, to allow the rescue to be pieced together, Swiss officials said Sunday night.
"This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue," UBS chairman Colm Kelleher told reporters.
"It is absolutely essential to the financial structure of Switzerland and ... to global finance," he told reporters.
Desperate to prevent the meltdown spreading through the global financial system on Monday, Swiss authorities initiated the search for a private sector solution, with limited state support, while reportedly considering Plan B — a full or partial nationalization.
"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 emergency takeover was agreed to after a days of frantic negotiations involving financial regulators in Switzerland, the United States and United Kingdom. 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.
Regulators applaud the takeover
Financial market regulators around the world cheered UBS' action to take over Credit Suisse.
US authorities said they supported the action and worked closely with the Swiss central bank to assist the takeover.
"We welcome the announcements by the Swiss authorities today to support financial stability," said US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell, in a joint statement. "The capital and liquidity positions of the US. banking system are strong, and the US financial system is resilient."
Christine Lagarde, President of the European Central Bank, said the banking sector remains resilient but the ECB stands at the ready to help banks maintain enough cash on hand to fund their operations if the need arises.
"I welcome the swift action and the decisions taken by the Swiss authorities," Lagarde said. "They are instrumental for restoring orderly market conditions and ensuring financial stability.
The Bank of England said it welcomed the measures taken by the Swiss authorities "to support financial stability."
"We have been engaging closely 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 remains safe and sound."
How UBS and Credit Suisse will fit together
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.
UBS Chief Executive Ralph Hamers will be CEO of the combined bank, and Kelleher will serve as chairman.
The takeover will reinforce the position of UBS as the world's leading wealth manager with $5 trillion of invested assets, and boost its ambition to grow in the Americas and Asia. UBS said it expects to generate cost savings of $8 billion per year by 2027. Credit Suisse's investment bank is in the crosshairs.
"Let me be clear. UBS intends to downsize Credit Suisse's investment banking business and align it with our conservative risk culture," Kelleher said.
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