Switzerland’s biggest bank, UBS, has agreed to purchase Credit Suisse in an emergency rescue deal aimed at stabilizing the financial market panic. The deal will not need the approval of shareholders since 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, and last week the confidence collapsed when it acknowledged “material weakness” in its bookkeeping. This led to shares falling by 25% over the week, and account holders withdrawing deposits of more than $10 billion per day.
UBS’ Takeover of Credit Suisse
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, approximately 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. UBS Chairman Colm Kelleher said, “This acquisition is attractive for UBS shareholders, but let us be clear; as far as Credit Suisse is concerned, this is an emergency rescue.” Regulator’s View on UBS’ Action
Regulators around the world had applauded 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. Christine Lagarde, President of the European Central Bank, said the banking sector remains resilient, but the ECB stands ready to help banks maintain enough cash on hand to fund their operations if the need arises. The Bank of England also welcomed the measures taken by the Swiss authorities “to support financial stability.” 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, allowing the rescue to be pieced together, Swiss officials said Sunday night.
How UBS and Credit Suisse Will Fit Together
The global headquarters of UBS and Credit Suisse are just 300 yards apart in Zurich. Still, the banks’ fortunes have been on different paths recently, with shares of UBS climbing 15% in the last two years and it booking a profit of $7.6 billion in 2022. 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. 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.
Impact of the Takeover
The rescue deal, which has avoided a possible nationalization, was seen by many as a necessary step to stabilize the Swiss banking system. Also, it was seen as a genuine effort to maintain stability in the European zone, which is still very fragile. The deal will lead to job cuts at Credit Suisse, and the Swiss government has urged UBS and Credit Suisse to ensure that these cuts are minimized. The takeover is significant for the Swiss economy and global finance, and it will have ramifications across Europe and the world’s financial markets.