UBS buys Credit Suisse for more than $3 billion in Swiss government-backed deal

Troubled Swiss banking giant Credit Suisse has agreed to be bought by its arch-rival UBS at a discount to Friday’s close after a wave of customer deposits left the bank.

The deal was announced by Switzerland’s President, Alain Berset, flanked by executives from both banks and the President of the Swiss National Bank.

“With the takeover of Credit Suisse by UBS, a solution was found to ensure financial stability and to protect the Swiss economy in this exceptional situation,” says a statement from the SNB.

buys Credit Suisse CS,
for 3 billion francs ($3.25 billion), or 0.76 francs per share, in an all-stock deal, the bank announced.

This is comparable to Credit Suisse’s CSGN,
Closing price of 1.86 francs on Friday. The FT reported that UBS had initially only offered CHF 0.25 per share.

UBS said it will benefit from CHF25 billion of downside protection from the transaction to support brands, purchase price adjustments and restructuring costs, as well as an additional 50 percent downside protection for non-core assets.

The deal does not require shareholder approval. The Swiss financial regulator announced that Credit Suisse’s AT1 securities, worth CHF 16 billion, will be written off in full.

Credit Suisse Chairman of the Board of Directors Axel Lehmann (L) and UBS Chairman of the Board of Directors Colm Kelleher (R) watch before a press conference.

Fabrice Coffrini/Agence France-Presse/Getty Images

“This is a commercial solution and not a rescue package,” said Swiss Finance Minister Karin Keller-Sutter. “Bankruptcy would have been the highest risk.”

The Swiss National Bank said either UBS or Credit Suisse can borrow up to CHF 100 billion in a liquidity support loan, and Credit Suisse can also receive a liquidity support loan of up to CHF 100 billion. secured by a federal standard

The Federal Reserve worked with its Swiss counterpart on the deal as both banks have large operations in the US

Keller-Sutter said she held talks with US Treasury Secretary Janet Yellen and British Chancellor Jeremy Hunt. Keller-Sutter said “many thousands” will be affected by Credit Suisse, noting the upcoming job cuts.

According to UBS, the combination of the two companies is expected to result in annual cost reductions of more than $8 billion by 2027. UBS President Colm Kelleher said the investment bank will not represent more than 25% of risk-weighted assets.

Credit Suisse’s demise came just days after the collapse of US banks SVB Financial and Signature Bank. While Credit Suisse and Swiss authorities said they didn’t face the same problems, they also saw customers churn. Big outflows resumed last week after wealthy clients withdrew about $100 billion from Credit Suisse in the fourth quarter, the FT reported.

Credit Suisse has shed money for five straight quarters as it was hit by losses to family office Archegos and forced to freeze $10 billion in supply chain funds sold through the Greensill Capital-managed bank.

Also read: Saudis, Qataris and Norway see big losses in UBS deal for Credit Suisse

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