In an emergency rescue agreement intended to quell the panic that the bankruptcy of two American banks earlier this month had sparked on the financial markets, Switzerland’s largest bank, UBS, has agreed to buy its struggling rival Credit Suisse.
In-depth details about to stop the banking crisis, UBS is buying Credit Suisse
The takeover of Credit Suisse by UBS was disclosed today, according to a statement released by the Swiss National Bank on Sunday. The bailout will “ensure financial stability and defend the Swiss economy,” according to the statement.
Credit Suisse is being purchased by UBS for 3 billion Swiss francs ($3.25 billion), which is nearly 60% less than the bank was worth on Friday at the close of business. By obtaining just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday, Credit Suisse stockholders will be largely wiped out. According to Swiss regulators, owners of a riskier kind of bank debt known as “extra tier one” bonds worth $17 billion will lose everything.
Exceptionally, the purchase won’t require shareholder approval since the Swiss government agreed to alter the law to remove any legal ambiguity.
Investors and clients had been losing faith in Credit Suisse (CS) for years. It had its largest loss since the global financial crisis in 2022. Its admission of “material weakness” in its bookkeeping and the failure of Silicon Valley Bank and Signature Bank, which stoked concerns about weaker institutions at a time when rising interest rates have reduced the value of some financial assets, respectively, caused confidence to collapse last week.
According to the Financial Times, the 167-year-old bank’s shares dropped 25% over the course of the week as money poured out of investment vehicles it administers and account holders at one point withdrew deposits totaling more than $10 billion per day. The Swiss National Bank’s emergency loan of around $54 billion was insufficient to stop the haemorrhage.
Nonetheless, Swiss officials acknowledged Sunday night that it did “create a bridge” to the weekend, allowing the rescue to be put together. UBS chairman Colm Kelleher told reporters, “This transaction is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue.
He told reporters that it was “extremely crucial” to both the Swiss financial system and global finance.
Swiss authorities started looking for a private sector solution on Monday, with limited state support, in an effort to stop the crisis from spreading to the rest of the world’s financial system. They are also reportedly exploring Plan B, a full or partial nationalisation.
The anticipated merger “represents the best available solution given recent extraordinary and unusual circumstances,” according to Credit Suisse chairman Axel Lehmann.
Credit Suisse is going through a very difficult phase right now, and even though the team has worked really hard to solve many key legacy concerns and carry out its new strategy, we have to come to a decision that will last in the long run.
After days of tense negotiations involving financial regulators from Switzerland, the US, and the UK, the emergency acquisition was approved. UBS (UBS) and Credit Suisse are two of the top 30 banks in the world financial system, and their combined assets total close to $1.7 trillion.
Global financial market regulators applauded UBS’ decision to acquire Credit Suisse.
According to US authorities, they assisted the takeover and closely coordinated with the Swiss central bank to support the action.
In Zurich, the global offices of UBS and Credit Suisse are only 300 yards away, but recently, the fortunes of the two banks have taken very different turns. UBS’s stock price has increased by 15% during the last two years, and in 2022 it reported a $7.6 billion profit. Refinitiv estimates that its stock market value on Friday was around $65 billion.
Over the same time span, the value of Credit Suisse’s shares has decreased by 84%, and the company reported a $7.9 billion loss in 2017. At the end of last week, it only had a $8 billion value.
To increase liquidity, the Swiss National Bank announced it will lend UBS and Credit Suisse 100 billion Swiss francs ($108 billion).
Ralph Hamers, CEO of UBS, will lead the combined bank, and Kelleher will act as chairman.
With $5 trillion in invested assets, the acquisition will strengthen UBS’ position as the world’s largest wealth manager and support its expansion plans in the Americas and Asia. According to UBS, by 2027 it hopes to save $8 billion annually. The investment bank of Credit Suisse is being targeted.
I want to be clear. According to Kelleher, UBS plans to reduce Credit Suisse’s investment banking operations and integrate them into our ethos of low risk.