UBS Group has agreed to buy Credit Suisse Group in a deal that was made possible thanks to “substantial liquidity assistance” from the Swiss National Bank.
Under the terms of the merger agreement all shareholders of Credit Suisse will receive one share in UBS for 22.48 shares in Credit Suisse, putting the deal’s price at around 3 billion Swiss francs ($3.2 billion).
The Swiss government is providing 9 billion Swiss francs to backstop potential losses that UBS may take on in the deal, officials said on Sunday.
The finalization of the deal caps off a challenging weekend in which reports said that regulators were rushing to announce a deal for Credit Suisse (ticker: CS) by Sunday evening—before financial markets open on Monday in Asia. A merger of Switzerland’s two largest banks comes against a backdrop of industry turmoil.
“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,” UBS Chair Colm Kelleher said in a statement Sunday.
In order to accomplish the deal, both UBS and Credit Suisse will have “unrestricted access” to the Swiss National Bank’s existing facilities to bolster its liquidity, according to the Swiss National Bank. The two banks can obtain a liquidity assistance loan with privileged creditor status in bankruptcy of up to 100 Swiss francs while the SNB can grant Credit Suisse a liquidity assistance loan of up to 100 Swiss francs backed by a federal default guarantee.
“By providing substantial liquidity assistance, the SNB is fulfilling its mandate to
contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end,” the Swiss National Bank said.
“We regret that CS was unable to master its own difficulties,” Karen Keller-Sutter, Swiss Finance Minister, said in a press conference Sunday, adding it will affect many thousand employees. But, the minister said, officials were unable to stop the loss of confidence in the bank. “The Federal council regrets and deplores that the bank that used to be a showcase for Switzerland…ended up in this position.”
During the press conference, UBS Chair Colm Kelleher acknowledged that the coming months will be “difficult” for employees at Credit Suisse and said that UBS will do its “utmost to keep this time of uncertainty as short as possible.”
Kelleher went on to say that he plans to “downsize” Credit Suisse’s investment bank and “align it with our conservative risk culture.” The joined investment banking businesses will account for no more than 25% of the group’s risk weighted assets.
“UBS is strength and our familiarity with Credit Suisse’s business puts us in a unique position to execute this integration efficiently and effectively with Swiss and international clients best interests in mind,” Kelleher said.
Swiss rules would normally require a six-week interval to complete such a deal, to allow time for shareholders to approve it. However, sources told the Financial Times that regulators may allow UBS to skip that period through the use of emergency measures, underscoring how quickly the parties are moving to try to reach an agreement.
The urgency for a deal came as investors continued to pull money from Credit Suisse, which saw outflows of nearly $11 billion a day late this past week. The bank also saw more than $450 million in net outflows from its U.S. and European managed funds from March 13 to 15, Morningstar Direct said on Friday, as retail and institutional counterparties pulled money out of funds managed by the embattled Swiss lender.
The prospective end of Credit Suisse as a stand-alone entity 167 years after its founding isn’t entirely a surprise: The bank has dealt with a string of problems in recent years, from worries about its financial controls to government probes, courtroom setbacks, and several quarters of eye-watering losses, among other issues, that have left investors wondering if it will survive.
Yet pressure for a resolution has become supercharged in recent weeks, in the wake of high-profile bank failures in the U.S., most notably Silicon Valley Bank, whose assets are also in the market for a buyer.
SVB’s closing touched off worldwide fears about the health of the industry, leading many customers to try to withdraw their funds and putting particular pressure on weaker banks’ stocks amid big market swings. Credit Suisse shares fell more than 17% over the past five trading days, and have lost over a third of their value so far in 2023. ?
UBS was also hit by the selloff in financial stocks, falling more than 7% in the past week, although it’s down just 4% this year.
The crisis of confidence in the U.S. banking system sparked truly global jitters. While Credit Suisse’s problems have been building for some time, the situation snowballed quickly because of the concerns ignited by the recent fall of Silvergate Bank, Silicon Valley Bank, and Signature Bank.
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