UBS agrees to buy Credit Suisse as regulators seek to shore up the global banking system

A sign on the roof of the headquarters of Credit Suisse Group AG in Zurich, Switzerland, Thursday, March 16, 2023. Credit Suisse has taken on the Swiss National Bank for as much as 50 billion francs ($54 billion) and offered to buy back debt, seeking to stem the crisis of confidence that rocked the global financial system. Photographer: Francesca Volpi/Bloomberg via Getty Images

Francesca Volpi | Bloomberg | Getty Images

UBS has agreed to buy its troubled rival Credit Suisse, with Swiss regulators playing a key role in the deal as governments seek to stem the contagion threatening the global banking system.

“With the takeover of Credit Suisse by UBS, a solution was found to ensure financial stability and protect the Swiss economy in this exceptional situation,” said a statement from the Swiss National Bank, which pledged a loan of up to 100 billion ($108). billion) Swiss francs to support the combination.

The takeover of the country’s two largest banks was facilitated by the Swiss government, the Swiss financial market watchdog FINMA and the Swiss National Bank, the statement said. The original statement did not show an amount.

The UBS deal was rushed before markets reopened for trading on Monday after Credit Suisse shares posted their worst weekly decline since the start of the coronavirus pandemic. The losses came despite a new loan of up to 50 billion Swiss francs ($54 billion) from the Swiss central bank to stem the slide and bolster the confidence of the bank’s counterparties in financial markets.

Credit Suisse was already struggling with a string of losses and scandals, and sentiment has been rocked again in the past two weeks as US banks have been reeling from the collapse of Silicon Valley Bank and Signature Bank. U.S. regulators’ protection of uninsured deposits in failed banks and the creation of a new funding mechanism for troubled other financial institutions failed to stem the shock, and it threatens to engulf more banks both in the U.S. and abroad.

Despite regulatory involvement in the pairing, the deal gives UBS the autonomy to manage the acquired assets as it sees fit, which could mean significant job cuts, sources told CNBC’s David Faber.

Credit Suisse’s scale and potential impact on the global economy is far greater than regional US banks, which have pressed Swiss regulators to find a way to merge the country’s two largest financial institutions. Credit Suisse’s balance sheet is about twice the size of Lehman Brothers when it collapsed, at about 530 billion Swiss francs by the end of 2022. It is also much more globally interconnected with numerous international subsidiaries — making the proper management of Credit Suisse’s situation even more important.

Bringing the two rivals together was not without struggles, but the push to prevent a systemic crisis ultimately won out. UBS initially offered to buy Credit Suisse for about $1 billion on Sunday, according to multiple media reports. Credit Suisse reportedly opposed the offer, arguing it was too low and would hurt shareholders and employees, people familiar with the matter told Bloomberg.

As of Sunday afternoon, UBS was in talks to buy the bank for “significantly” more than 1 billion Swiss francs, sources Faber told CNBC. He said the deal price increased throughout the day of negotiations.

Credit Suisse lost about 38% of its deposits in the fourth quarter of 2022 and revealed in its delayed annual report early last week that the outflows had yet to reverse. It reported a full-year net loss of 7.3 billion Swiss francs for 2022 and expects a further “significant” loss in 2023.

The bank previously announced a major strategic overhaul in an attempt to address these chronic problems, with current CEO and Credit Suisse veteran Ulrich Koerner taking over in July.

— CNBC’s Katrina Bishop contributed to this report.

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