Swiss authorities have announced that UBS has reached an agreement to acquire Credit Suisse to prevent further market disruption in the global banking sector. The move comes as Swiss regulators aim to prevent a crisis of confidence in Credit Suisse from spilling over into the wider financial system, with the finance minister warning that a failure of a globally important bank could have irreparable consequences for the financial markets.
The Swiss central bank said it would provide substantial liquidity to the merged bank, with 100 billion Swiss francs ($108 billion) of liquidity aid allocated to UBS and Credit Suisse. Although the value of the deal has not yet been disclosed, a Financial Times report suggests it exceeds $2 billion.
“With the takeover of Credit Suisse by UBS, a solution has been found to ensure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss Central Bank said.
The Swiss Financial Market Supervisory Authority (FINMA) has assured that all business activities of the two banks can continue without restriction or interruption. He also confirmed that he would coordinate with national and international authorities, including the US Federal Reserve and the British Prudential Regulation Authority.
Credit Suisse has come under intense scrutiny lately, with a brutal week that led to the second and third biggest US bank failures in history. As one of 30 global banks considered systemically important, a deal on Credit Suisse could have far-reaching implications for global financial markets.
While the weekend negotiations are seen as a positive step, it remains to be seen whether the deal is enough to restore confidence in lenders around the world. The fallout from the crisis of confidence in Credit Suisse and the failure of the two U.S. banks could ripple through the financial system this week, according to two senior executives familiar with the talks.
Credit Suisse shares lost a quarter of their value last week and the bank was forced to draw $54 billion in central bank funding to stabilize its balance sheet. Swiss authorities are also reportedly considering imposing losses on Credit Suisse bondholders as part of the bank’s bailout. However, European regulators are hesitant about such a move, fearing it could affect investor confidence elsewhere in the European financial sector.