Banking behemoth UBS is purchasing ailing rival Credit Suisse for over $3.24 billion, in a deal arranged by authorities to avert further market-shaking instability in the global financial system.
After learning of Credit Suisse’s intention to borrow up to $50 billion, the Swiss government pushed for UBS to acquire its smaller rival. Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming financial market panic unleashed by the failure of two American banks earlier this month.
“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement Sunday. It said the rescue would “secure financial stability and protect the Swiss economy.”
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.
Credit Suisse’s history dates back to 1856. Its roots are the Schweizerische Kreditanstalt (SKA), founded to finance the expansion of the rail network and the industrialization of Switzerland. In addition to being the second largest bank in Switzerland, he manages the wealth of many of the world’s wealthiest individuals and provides global investment banking services. By the end of 2022, more than 50,000 people will be employed, 17,000 of whom will live in Switzerland.
The Swiss National Bank has announced that he will provide 100 billion Swiss francs ($108 billion) in loans to UBS and Credit Suisse to boost liquidity. UBS CEO Ralph Hamers will become CEO of the combined bank, with Kelleher serving as Chairman. The acquisition strengthens UBS’s position as the world’s leading wealth manager with $5 trillion in assets under management and strengthens the company’s ambitions to grow in the Americas and Asia. UBS expects $8 billion in annual cost savings by 2027. Credit Suisse investment bank is in the crosshairs.
“Let’s be clear: UBS intends to scale back Credit Suisse’s investment banking business to align with a conservative risk culture,” he said. In summary, UBS’s acquisition of Credit Suisse is an important development in the global banking system. The acquisition aims to restore financial stability and protect the Swiss economy from further market turmoil. We also expect UBS and Credit Suisse to work together to create a new force in global banking, leading to a shift in the balance of power in the global banking system.
