London (CNN) Switzerland’s biggest bank, UBS, has agreed to buy its ailing rival Credit Suisse in an emergency rescue deal aimed at stemming the panic in financial markets triggered by the failure of two US banks earlier this month.
“UBS announced today the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the bailout would “ensure financial stability and protect the Swiss economy.”
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, receiving the equivalent of just 0.76 Swiss francs in UBS shares for shares that were worth 1.86 Swiss francs on Friday.
Unusually, the deal will not need shareholder approval after the Swiss government agreed to change the law to remove any uncertainty about the deal.
Swiss credit (CS) has been losing the trust of investors and customers for years. In 2022, it recorded its worst loss since the global financial crisis. But the trust slumped last week after it admitted a “material weakness” in its accounting and after the collapse of Silicon Valley Bank and Signature Bank spread fears about weaker institutions at a time when rising interest rates have eroded the value of some financial assets.
Shares in the 167-year-old bank fell 25% in the week, cash poured out of investment funds it manages and at one point account holders were withdrawing deposits worth more than $10 billion a day, the Financial Times reported. An emergency loan of nearly $54 billion from the Swiss National Bank failed to stop the bleeding.
But it did “build a bridge” to the weekend to allow the rescue to be collected, Swiss officials said on Sunday night.
“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher told reporters.
“This is absolutely important for the financial structure of Switzerland and … for global finance,” he told reporters.
Desperate to prevent a meltdown from spreading across the global financial system on Monday, Swiss authorities began searching for a private-sector solution with limited state support, while mulling a Plan B — full or partial nationalization.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best possible outcome,” Credit Suisse Chairman Axel Lehmann said in a statement.
“This has been an extremely challenging time for Credit Suisse, and while the team has worked tirelessly to address many important legacy issues and deliver on its new strategy, we are compelled to reach a solution today that delivers a lasting outcome.”
The emergency takeover was agreed after days of frantic negotiations involving financial regulators in Switzerland, the United States and the United Kingdom. UBS (UBS) and Credit Suisse rank among the 30 most important banks in the global financial system and together have almost $1.7 trillion in assets.
Regulators applauded the acquisition
Financial market regulators around the world welcomed UBS’s move to acquire Credit Suisse.
US officials said they supported the move and worked closely with the Swiss central bank to facilitate the acquisition.
“We welcome today’s announcements by the Swiss authorities to support financial stability,” US Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell said in a joint statement. “The capital and liquidity positions of the US banking system are strong and the US financial system is resilient.”
Christine Lagarde, president of the European Central Bank, said the banking sector remains resilient, but the ECB stands ready to help banks keep enough cash on hand to fund their operations if the need arises.
“I welcome the swift action and decisions taken by the Swiss authorities,” Lagarde said. “They are a tool for restoring regular market conditions and ensuring financial stability.
The Bank of England said it welcomed the measures taken by the Swiss authorities “to support financial stability”.
“We have been working closely with international partners in preparation for today’s announcements and will continue to support their implementation,” it said in a statement. “The UK banking system is well capitalized and funded and remains safe and sound.”
How UBS and Credit Suisse will fit together
The global headquarters of UBS and Credit Suisse are just 300 yards from each other in Zurich, but the fortunes of the banks have recently taken very different paths. UBS shares have risen 15% over the past two years and are on track to post $7.6 billion in profit in 2022. The stock market value was about $65 billion on Friday, according to Refinitiv.
Shares of Credit Suisse have lost 84% of their value over the same period, and last year it posted a loss of $7.9 billion. At the end of last week, it was worth just $8 billion.
Dating back to 1856, Credit Suisse has its roots in the Schweizerische Kreditanstalt (SKA), which was established to finance the expansion of the railway network and the industrialization of Switzerland.
As well as being the second largest bank in Switzerland, it looks after the wealth of many of the world’s richest people and offers global investment banking services. It has more than 50,000 employees at the end of 2022, 17,000 of them in Switzerland.
The Swiss National Bank said it would provide a 100 billion Swiss franc ($108 billion) loan to UBS and Credit Suisse to boost liquidity.
UBS CEO Ralph Hammers will be CEO of the combined bank, and Kelleher will serve as chairman.
The takeover will strengthen UBS’s position as the world’s leading wealth manager with $5 trillion in invested assets and boost its ambition for growth in the Americas and Asia. UBS said it expects to generate savings of $8 billion a year by 2027. Credit Suisse’s investment bank is in the sights.
“Let me be clear. UBS intends to reduce Credit Suisse’s investment banking business and align it with our conservative risk culture,” Kelleher said.