Troubled bank Credit Suisse has been rescued by its Swiss rival UBS in a government-backed deal.
Sunday night’s announcement came after a weekend of emergency talks in Switzerland between the two banks and the country’s financial regulators.
The Swiss National Bank said the deal was the best way to restore confidence in financial markets and manage risks to the economy.
The Bank of England said it welcomed the “comprehensive set of actions”.
Credit Suisse shareholders were disenfranchised in the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15bn (£2.6bn).
At the close of business on Friday, Credit Suisse was valued at around $8bn (£6.5bn).
But the deal achieved what regulators set out to achieve – securing an outcome before financial markets opened on Monday.
In a statement, Switzerland’s central bank said “a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation.”
The federal government said that to mitigate any risks to UBS, it would provide a guarantee against potential losses worth $9.6 billion (£7.9 billion)
The Swiss central bank has also offered up to $110bn (£90bn) in liquidity support.
Global financial institutions were quick to praise the deal.
The Bank of England said it welcomed the “comprehensive set of actions” set out by the Swiss authorities.
“We have been working closely with international partners in preparation for today’s announcements and will continue to support their implementation.”
It said the UK banking system was “well capitalized and funded and remains safe and sound”.
The UK Treasury also said it welcomed the merger and the British government would continue to work with the Financial Conduct Authority (FCA) and the Bank of England “as usual”.
The FCA said on Sunday it “intends to approve” the acquisition to support financial stability, as both UBS and Credit Suisse have operations in London.
“The FCA continues to work closely with UK and international regulatory partners to monitor market developments,” the watchdog said.
Christine Lagarde, president of the European Central Bank, said she welcomed the Swiss authorities’ “swift action”.
“They are a tool for restoring regular market conditions and ensuring financial stability.
“The banking sector in the euro area is resilient, with strong capital and liquidity positions,” Ms Lagarde said.
The comments of the president of the European Central Bank were also reflected in the US.
Treasury Secretary Janet Yellen and Federal Reserve Board Chairman Jerome Powell said the Swiss announcement supported “financial stability.”
“The capital and liquidity positions of the US banking system are strong and the US financial system is resilient,” they said.
Credit Suisse has become the latest and most important casualty of a crisis of confidence that has already led to the bankruptcy of two mid-sized US banks and an emergency industry crackdown on another. But this is different. Switzerland’s second-largest lender was considered one of the world’s 30 most important banks – which is why this takeover was rushed by Swiss authorities.
Although the reasons for each failure differ slightly, the main factor is the sharp rise in global interest rates, which has hit the value of even safe investments in which banks hold some of their money. This spooked investors and saw the share prices of all banks fall, with those considered the weakest hit the hardest.
Financial authorities in the EU, US and UK say they support the deal, stressing that banks are strong and people’s savings and deposits are safe. The clear test of whether this Swiss bailout has calmed nerves in the financial world will be when financial markets open on Monday – which is why it was so important to do so on Sunday night.
Speaking in the Swiss capital of Bern after the announcement on Sunday evening, UBS chairman Colm Kelleher said Credit Suisse was “a very good asset that we are determined to keep”.
“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” he added.
Mr. Kelleher said UBS will manage Credit Suisse’s investment banking arm.
The UBS chairman said it was “too early” to say what would happen to jobs: “We have to do this in a rational way, thought out, when we have sat down and analyzed what we have to do,” he said.
The weekend deal comes after a $54bn (£44.5bn) lifeline from the Swiss National Bank on Wednesday failed to calm markets and Credit Suisse shares tumbled 24%, sparking a wider sell-off in European markets.
The 167-year-old bank has been loss-making and has faced a series of problems in recent years, including allegations of money laundering.