London (CNN) Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at preventing financial market panic unleashed by the failure of two American banks earlier this week. month.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement on Sunday. It said the bailout “will ensure financial stability and protect the Swiss economy.”
UBS paid 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 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday. Holders of $17 billion worth of “extra level one” bonds — a risky type of bank debt — will lose everything, Swiss regulators said.
Remarkably, the deal will not require the approval of shareholders after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Swiss credit (CS) has lost the confidence of investors and customers over the years. In 2022, the worst loss since the global financial crisis was recorded. But the trust collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the deaths of Silicon Valley Bank and Signature Bank spread fears about weaker institutions at a time when rising interest rates have hurt in the value of certain financial assets.
Shares of the 167-year-old bank fell 25% in a week, money poured in from the investment funds it manages and at one point account holders withdrew 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 “built a bridge” over the weekend, to allow the rescue to be put together, Swiss officials said Sunday night.
“This acquisition is attractive for UBS shareholders but, let’s be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.
“This is very important to the Swiss financial structure and … to global finance,” he told reporters.
Desperate to prevent the spread of the collapse of the global financial system on Monday, Swiss authorities began looking for a private sector solution, with limited state support, while reportedly considering Plan B – a full or partial nationalization.
“Given the recent unique and unprecedented circumstances, the announced merger represents the best available outcome,” Credit Suisse chairman Axel Lehmann said in a statement.
“This is an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address the many key legacy issues and implement the new strategy, we are compelled to reach a solution now which gives a strong result.”
The emergency takeover was agreed after a day of tumultuous negotiations involving financial regulators in Switzerland, the United States and the 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.
Regulators hailed the acquisition
Financial market regulators around the world encouraged UBS’s takeover of Credit Suisse.
US authorities said they supported the action and were working closely with the Swiss central bank to facilitate 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. “Capital and liquidity positions in the US. banking system are strong, and the US financial system is strong.”
Christine Lagarde, President of the European Central Bank, said the banking sector remains strong but the ECB stands ready to help banks maintain 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 instruments for restoring orderly market conditions and ensuring financial stability.
The Bank of England said it welcomed the steps taken by the Swiss authorities “to support financial stability.”
“We have been closely involved 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 match up
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. UBS’s shares have risen 15% over the past two years, and it has booked revenue of $7.6 billion in 2022. It has a stock market value of about $65 billion on Friday, according to Refinitiv.
Shares of Credit Suisse lost 84% of their value during 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.
UBS CEO Ralph Hamers will lead the new combined banking giant.
From 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was founded to finance the expansion of the railway network and the industrialization of Switzerland.
In addition to being the second largest bank in Switzerland, it oversees the wealth of many of the world’s richest people and offers global investment banking services. It will have more than 50,000 employees by 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 strengthen UBS’s position as the world’s leading wealth manager with $5 trillion in invested assets, and boost its ambitions to grow in the Americas and Asia. UBS says it expects to generate cost savings of $8 billion annually by 2027. Investment bank Credit Suisse is in the crosshairs.
“Let me explain. UBS intends to reduce the investment banking business of Credit Suisse and adapt it to our conservative risk culture,” said Kelleher.
