London
CNN
—
Switzerland’s biggest bank, UBS, has agreed to buy struggling rival Credit Suisse in an emergency bailout deal aimed at stemming financial market panic sparked by the failure of two US banks earlier this year. month.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement. He said the rescue would “ensure 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’s value at the close of trading on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for shares that were worth 1.86 Swiss francs on Friday.
Exceptionally, the deal will not need shareholder approval after the Swiss government agreed to change the law to remove any uncertainty over the deal.
Credit Suisse (CS) had been losing investor and client confidence for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence plummeted last week after it acknowledged a “material weakness” in its accounting and as the demise of Silicon Valley Bank and Signature Bank sowed fear of weaker institutions at a time when the soaring interest rates undermined the value of some financial assets.
Shares in the 167-year-old bank fell 25% over the week as money poured in from the investment funds it manages and at one point account holders were withdrawing deposits of more $10 billion a day, reported the Financial Times. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.
But it has “built a bridge” to the weekend, to allow the rescue to be replenished, Swiss officials said on Sunday evening.
“This acquisition is attractive to 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. .
“It is absolutely essential to the financial structure of Switzerland and … to global finance,” he told reporters.
Desperate to prevent the meltdown from spreading to the global financial system on Monday, Swiss authorities launched a search for a private sector solution, with limited state support, while considering plan B – full nationalization. or partial.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best outcome available,” Credit Suisse Chairman Axel Lehmann said in a statement.
“It has been an extremely difficult time for Credit Suisse and although the team has worked tirelessly to resolve many legacy issues and implement its new strategy, we are compelled today to find a solution that offers a lasting result.”
The emergency takeover was decided after several days of frantic negotiations involving financial regulators in Switzerland, the United States and the United Kingdom. UBS (UBS) and Credit Suisse are among the 30 largest banks in the global financial system and together they hold nearly $1.7 trillion in assets.
Financial market regulators around the world have applauded UBS’s decision to take over Credit Suisse.
US officials said they support the action and are working closely with the Swiss central bank to help with the takeover.
“We welcome the announcements made today by the Swiss authorities to support financial stability,” US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said in a joint statement. “The Capital and Liquidity Positions of the United States. the banking system is 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 ready to help banks maintain enough liquidity to fund operations when needed.
“I welcome the swift action and the decisions taken by the Swiss authorities,” Lagarde said. “They are essential to restore orderly market conditions and ensure financial stability.
The Bank of England said it welcomed steps taken by the Swiss authorities “to support financial stability”.
“We have worked closely with our international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” he said in a statement. “The UK banking system is well capitalized and funded, and remains safe and sound.”
The global headquarters of UBS and Credit Suisse are only 300 meters apart in Zurich, but the banks’ fortunes have recently taken very different paths. UBS shares have climbed 15% over the past two years, and it posted a profit of $7.6 billion in 2022. It had a market value of around $65 billion on Friday, according to Refinitiv.
Credit Suisse shares have lost 84% of their value over the same period and last year posted a loss of $7.9 billion. He was only worth $8 billion at the end of last week.
Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was created to finance the expansion of the rail network and the industrialization of Switzerland.
In addition to being the second largest bank in Switzerland, it manages the wealth of many of the world’s wealthiest people and offers global investment banking services. It had more than 50,000 employees at the end of 2022, including 17,000 in Switzerland.
The Swiss National Bank said it would provide a 100 billion Swiss franc ($108 billion) loan to UBS and Credit Suisse to boost liquidity.
UBS chief executive Ralph Hamers will be the combined bank’s CEO and Kelleher will be its chairman.
The acquisition will strengthen UBS’s position as a global leader in wealth management with $5 trillion in invested assets, and bolster its ambition for growth in the Americas and Asia. UBS said it expects to generate cost savings of $8 billion a year by 2027. Investment bank Credit Suisse 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.
Cnn
