UBS is buying Credit Suisse for $3.2 billion as regulators seek to shore up the global banking system

UBS agreed to buy its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) on Sunday, 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,” the Swiss National Bank said in a statement, noting that the central bank had worked with the Swiss government and the Swiss authority for the supervision of the financial markets to carry out the merger of the two largest banks in the country.

Credit Suisse headquarters in Zurich, Switzerland, on March 19.Michael Buchholzer/Keystone via AP

The terms of the deal provide that Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares they own.

“This acquisition is attractive to UBS shareholders, but let’s be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction that will preserve the value remaining in the business while limiting our downside exposure,” UBS Chairman Colm Kelleher said in a statement.

The combined bank will have $5 trillion in invested assets, according to UBS.

The Swiss National Bank pledged a loan of up to 100 billion Swiss francs ($108 billion) to support the acquisition. The Swiss government also provided a loss-absorbing guarantee of up to 9 billion Swiss francs on certain assets above a pre-set threshold “to reduce all risks to UBS,” a separate government statement said.

“This is a trade decision, not a bailout,” Karin Keller-Sutter, the Swiss finance minister, told a news conference on Sunday.

The UBS deal was struck 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 last week in a bid to stem the slide and restore confidence in the bank.

Credit Suisse was already struggling with a string of losses and scandals, and sentiment has been shaken again in the past two weeks as US banks have been reeling from the collapse of Silicon Valley Bank and Signature Bank.

The protection of uninsured deposits in failed banks by US regulators and the creation of a new funding mechanism for troubled financial institutions has failed to stem the shock and threatens to engulf more banks both in the US and abroad.

Credit Suisse Chairman Axel Lehman said at the press conference that the financial instability caused by the collapse of regional banks in the US had hit the bank at the wrong time.

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 that of Lehman Brothers when it collapsed, at about 530 billion Swiss francs at the end of 2022. It is also much more globally interconnected, with numerous international subsidiaries – which makes 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.

By 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.

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