On Sunday (March 19, 2023), UBS and Credit Suisse reached an agreement to merge for 3 billion Swiss francs ($3.2 billion), with Swiss authorities playing a crucial role in the transaction as nations sought to contain a contagion that was threatening the global banking system.
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” read a statement from the Swiss National Bank, which noted the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring about the combination of the country’s two largest banks.
The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure,” said UBS Chairman Colm Kelleher in a statement.
The combined bank will have $5 trillion of invested assets, according to UBS.
“We are committed to making this deal a great success. There are no options in this,” Kelleher said when asked during the press conference if the bank could back out of the deal. “This is absolutely essential to the financial structure of Switzerland and … to global finance.”
The Swiss National Bank pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the takeover. The Swiss government also granted a guarantee to assume losses up to 9 billion Swiss francs from certain assets over a preset threshold “in order to reduce any risks for UBS,” said a separate government statement.
“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister, in a press conference Sunday.
As markets resumed trading on Monday, the UBS transaction was hastily put together after Credit Suisse shares had their greatest weekly loss since the start of the coronavirus outbreak. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) granted from the Swiss central bank last week, in an effort to halt the slide and restore confidence in the bank.
Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell welcomed news of the deal in a statement. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient. We have been in close contact with our international counterparts to support their implementation,” they said.
Credit Suisse had already been battling a string of losses and scandals, and in the last two weeks, sentiment was rocked again as banks in the U.S. reeled from the collapse of Silicon Valley Bank and Signature Bank.
U.S. regulators’ backstop of uninsured deposits in the failed banks and the creation of a new funding facility for troubled financial institutions failed to stem the shock and is threatening to envelop more banks both in the U.S. and abroad.
Credit Suisse Chairman Axel Lehmann said in the press conference that the financial instability brought about by the collapsed U.S. regional banks hit the bank at the wrong time.
Despite regulators’ involvement in the pairing, the deal gives UBS autonomy to run the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.
The size and potential influence of Credit Suisse on the world economy are significantly bigger than those of U.S. regional banks, which put pressure on Swiss regulators to find a method to merge the two biggest financial firms in the nation.
Credit Suisse’s balance sheet is around twice the size of Lehman Brothers’ when it collapsed, at around 530 billion Swiss francs as of the end of 2022. It is also far more globally interconnected, with multiple international subsidiaries making an orderly management of Credit Suisse’s situation even more important.
Bringing the two rivals together was not without its struggles, but pressure to stave off a systemic crisis won out in the end. UBS initially offered to buy Credit Suisse for around $1 billion Sunday, according to multiple media reports. Credit Suisse reportedly balked at the offer, arguing it was too low and would hurt shareholders and employees, people with knowledge of the matter told Bloomberg.
By Sunday afternoon, UBS was in talks to buy the bank for “substantially” more than 1 billion Swiss francs, sources told CNBC’s Faber. He said the price of the deal increased throughout the day’s negotiations.
Credit Suisse lost around 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that outflows have still yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “substantial” loss in 2023.
The bank had previously announced a massive strategic overhaul in a bid to address these chronic issues, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.
