UBS and Swiss National Bank agree to acquire Credit Suisse
The Swiss National Bank said at a press conference in Bern late on Sunday that UBS will take control of Credit Suisse.
The deal will see UBS acquire Credit Suisse for CHF3 billion ($3.23 billion).
Swiss President Alain Berset said the Swiss Federal Council welcomed the takeover as it was the “best solution” to restore and strengthen market confidence in Credit Suisse and the Swiss financial center.
It was not immediately clear whether the bailout would assuage investor concerns about the broader banking sector.
As expected, the Swiss authorities reached an agreement just in time for the first stock exchanges in Australia, New Zealand and Asia to open for Monday in the next few hours, when the first indications may appear.
The US Federal Reserve and other central banks also sought on Sunday to ease fears through a concerted effort to boost liquidity in the banking sector. British, Canadian, Swiss and EU central banks are reportedly involved in the effort to increase access to dollars in so-called swap line operations.
What else do we know?
Government and banking officials were engaged in urgent talks to rescue the distressed creditor, who received a $54 billion (€50 billion) bailout from the country’s central bank this week.
Swiss Finance Minister Karin Keller-Sutter told the press conference that the Berne government had agreed to provide guarantees of up to CHF 9 billion to underwrite the takeover. But Keller-Sutter said those guarantees would only apply to a “very specific portfolio, which UBS is taking over now”.
She also said that the guarantees would only start to apply if UBS’s acquisition-related losses exceeded 5 billion francs.
Merger builds on ‘best available skills’ – UBS chairman
UBS chairman Colm Kelleher has repeatedly referred to the deal as an “integration” or “transaction”.
Kelleher said the merger would “enhance the combined organization’s ability to serve our customers and deepen our best-in-class capabilities.”
However, he also sought to reassure those outside the banking sector that UBS would reduce the amount of risk Credit Suisse is exposed to and that he recognized the need to keep capital on hand amid the war in Ukraine and exceptionally high inflation.
“We are also aware of the need to support the wider Swiss economy and our customers at a time when macroeconomic uncertainty makes business conditions challenging and unpredictable,” said Kelleher, before proceeding with his aim to reduce the size of Credit Suisse investment bank.
“Let me be very specific about this: UBS intends to scale down Credit Suisse’s investment banking business and align it with our conservative risk culture. It is intended that the combined investment banking business will, over time, represent , not more than 20% of the group’s risk weighted assets”.
The deal is worth less than half the face value of the shares
Previously, there were reports, including of The Financial Timesthat UBS offered to buy the bank for up to CHF 1 billion and later CHF 2 billion, but Credit Suisse reportedly turned down these offers,
In the 3 billion franc deal, UBS will pay 0.76 Swiss francs (about $0.82 or €0.77) per Credit Suisse share, well below its closing price of 1.86 francs on Friday. fair. That would make the bank’s value by market capitalization around $7 billion, whereas a year ago Credit Suisse was valued at around $25 billion by shareholders.
But UBS is also taking responsibility for CHF5 billion in losses before the government support takes effect, according to the Swiss finance minister.
UBS and Credit Suisse said the deal was not subject to shareholder approval, suggesting the Swiss government has waived that requirement in this case.
Source: DW
Lori Barajas is an accomplished journalist, known for her insightful and thought-provoking writing on economy. She currently works as a writer at 247 news reel. With a passion for understanding the economy, Lori’s writing delves deep into the financial issues that matter most, providing readers with a unique perspective on current events.