Struggling Swiss banking giant Credit Suisse has agreed to be taken over by arch-rival UBS at a discount to Friday’s closing price after seeing a wave of customer deposits leave the bank.
The agreement was announced by the Swiss President, Alain Berset, accompanied by leaders of the two banks and the President of the Swiss National Bank.
“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 SNB said in a statement.
UBSUBS,
will acquire Credit Suisse CS,
for 3 billion francs ($3.25 billion), or 0.76 francs per share, in an all-stock transaction, the bank said.
This compares to Credit Suisse’s CSGN,
closing price of 1.86 francs on Friday. The FT reported that UBS initially offered just 0.25 francs per share.
UBS said it received downside protection of 25 billion francs from the transaction to support brands, purchase price adjustments and restructuring costs, and an additional 50% downside protection on assets not essential.
The deal does not need shareholder approval. The Swiss financial regulator has said that Credit Suisse’s AT1 securities, worth 16 billion francs, will be fully written down.
Credit Suisse Chairman Axel Lehmann (L) and UBS Chairman Colm Kelleher (R) look on before a news conference.
Fabrice Coffrini/Agence France-Presse/Getty Images
“This is a business solution, not a bailout,” said Karin Keller-Sutter, Swiss finance minister. “Bankruptcy would have been the highest risk.”
The Swiss National Bank said that UBS or Credit Suisse can borrow up to 100 billion francs under a liquidity assistance loan, and that Credit Suisse can also receive a liquidity assistance loan. liquidity of up to 100 billion francs. backed by a federal default
guarantee.
The Federal Reserve worked with its Swiss counterpart on the deal, as both banks have major operations in the United States.
Keller-Sutter said he had talks with US Treasury Secretary Janet Yellen and UK Chancellor Jeremy Hunt. Keller-Sutter said “several thousand” of Credit Suisse will be affected, pointing to upcoming job cuts.
UBS said the combination of the two businesses is expected to generate an annual cost reduction rate of more than $8 billion by 2027. UBS Chairman Colm Kelleher said the investment bank would not represent more than 25% of risk-weighted assets.
Credit Suisse’s downfall came just days after US banks SVB Financial and Signature Bank collapsed. While Credit Suisse, as well as Swiss authorities, have said they don’t have the same kind of problems, they have also seen clients leave. After high net worth clients withdrew around $100 billion from Credit Suisse in the fourth quarter, they started to see big outflows again last week, the FT reported.
Credit Suisse has lost money for five straight quarters, reeling from losses at family office Archegos and had to freeze $10 billion in supply chain funds sold through the bank and managed by Greensill Capital.
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