UBS agreed to buy Credit Suisse for $3.25bn after a weekend of frantic negotiations brokered by Swiss regulators to safeguard the banking system and try to prevent a crisis spreading in global financial markets.
The historic deal comes after five days as the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatened to topple the country’s second-biggest lender.
A SFr50bn ($54bn) emergency credit line provided by the Swiss National Bank on Wednesday failed to arrest a fall in share prices, exacerbated by wider market turmoil caused by the sudden collapse of California-based Silicon Valley Bank.
“On Friday, the outflow of liquidity and market volatility showed that it is no longer possible to restore market confidence, and a quick and stable solution is absolutely necessary,” said Swiss president Alain Berset at a press conference in Bern on Sunday evening. “The solution is the takeover of Credit Suisse by UBS.”
UBS will pay about SFr0.76 a share in its own shares, worth SFr3bn, up from a bid of SFr0.25 earlier in the day worth around $1bn which was rejected by Credit Suisse’s board. However, the offer remains well below Credit Suisse’s closing price of SFr1.86 on Friday.
The Swiss National Bank has agreed to offer a SFr100bn liquidity line backed by a federal default guarantee to UBS as part of the deal, the Swiss finance ministry said. The government has also guaranteed losses of up to SFr9bn, but only after UBS has borne the first SFr5bn of losses on certain asset portfolios.
Some SFr16bn of Credit Suisse’s Additional 1 capital bonds, designed to cushion losses when institutions run into trouble and transfer the risk of bank failure from taxpayers to investors, are being written off.
Credit Suisse said in a statement on Friday evening that the Swiss market regulator has determined that the bond will be “written off to zero”.
This is a developing story. More to follow