UBS agreed to buy Credit Suisse for $3.25 billion after a frenetic weekend of brokered negotiations by Swiss regulators to protect its banking system and try to prevent a crisis from spreading through global financial markets.
The landmark deal follows five days in which the Swiss establishment scrambled to end a deepening crisis at Credit Suisse that threatened to topple the country’s second-largest lender.
A 50 billion Swiss franc ($54 billion) emergency credit line provided by the Swiss National Bank on Wednesday failed to halt a sharp decline in the share price, which was exacerbated by the turmoil wider market conditions caused by the sudden collapse of California-based Silicon Valley Bank.
“On Friday, the liquidity outflows and market volatility showed that it was no longer possible to restore market confidence, and a rapid and stabilizing solution was absolutely necessary,” Swiss President Alain Berset said during a briefing. a press conference in Bern on Sunday evening. “That solution was the takeover of Credit Suisse by UBS.”
UBS will pay around 0.76 SFr per share in its own shares, worth 3 billion SFr, compared to an offer of 0.25 SFr earlier today worth around 1 billion dollars which has was rejected by the Board of Directors of Credit Suisse. However, the offer remains well below Credit Suisse’s closing price of 1.86 SFr on Friday.
The Swiss National Bank has agreed to offer a 100 billion Swiss franc liquidity line backed by a federal default guarantee to UBS as part of the deal, the Swiss finance ministry said. The government also offers a loss guarantee of up to 9 billion Swiss francs, but only after UBS bears the first 5 billion francs of losses on certain portfolios of assets.
Some CHF16 billion of additional Credit Suisse Tier 1 capital bonds, designed to absorb losses when institutions run into trouble and to transfer the risk of bank failure from taxpayers to investors, are being written off. .
Credit Suisse said in its statement Sunday evening that the Swiss market regulator had determined that the bonds would be “cancelled to zero”.
This is a developing story. More soon
