In a move engineered by the Swiss government to prevent further market turbulence in global banking, UBS has agreed to buy rival Swiss bank Credit Suisse for 3 billion Swiss Francs ($3.23 billion), reported news agency Reuters. The deal, which is expected to close by the end of 2023, also involves UBS assuming up to $5.4 billion in losses.
Swiss regulators had to step in and orchestrate a deal to prevent a crisis of confidence in Credit Suisse from spilling over into the broader financial system. The Swiss finance minister said that the bankruptcy of a globally important bank would have created irreparable consequences for financial markets.
The effect on jobs resulting from the merger was not immediately clear, Reuters stated. According to the report, UBS said it expected annual cost savings of around $7 billion by 2027. Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, equivalent to 0.76 Swiss francs per share for a total consideration of 3 billion francs, UBS was quoted as saying by Reuters.
The Swiss Financial Market Supervisory Authority (FINMA) stated that it will be possible to continue all business activities of both banks with no restrictions or interruptions. FINMA also said that it will coordinate with national and international authorities, namely the U.S. Federal Reserve and the British Prudential Regulation Authority. Credit Suisse Additional Tier 1 shares with a nominal value of around 16 billion Swiss francs ($17.2 billion) will be written down completely after the Swiss government provided support, according to the Swiss regulator.
UBS and Credit Suisse have experienced divergent fortunes over the past year. In 2022, UBS earned $7.6 billion in profit, while Credit Suisse lost $7.9 billion. Credit Suisse's shares are down 74% from a year ago, while UBS's shares remain relatively flat. The fallout from the crisis of confidence in Credit Suisse and the failure of two U.S. banks could have ripple effects through the financial system this week, according to senior executives with knowledge of the discussions.
At least two major banks in Europe are examining scenarios of contagion possibly spreading in the region's banking sector and looking to the Federal Reserve and the European Central Bank to step in with stronger signals of support. U.S. authorities are working with their Swiss counterparts to help broker a deal, Bloomberg reported, while Sky News said that the Bank of England has indicated to international counterparts and to UBS that it would back the proposed takeover of Credit Suisse, which counts Britain as a key market.
The Swiss central bank will supply substantial liquidity to the merged bank, according to a news conference in the Swiss capital, Bern. It said the deal includes 100 billion Swiss francs ($108 billion) in liquidity assistance for UBS and Credit Suisse. However, it is not yet clear if the deal is enough to restore trust in lenders around the world. The first indication could come when stock markets open in a few hours in Asia, Australia, and New Zealand.