UBS to buy Credit Suisse in historic deal to end crisis

Swiss banking giant UBS agreed to buy Credit Suisse in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.

The Swiss bank is paying 3 billion francs ($4.8 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price is less than half the 7.4 billion francs Credit Suisse was worth at the close of trading on Friday.

UBS’ takeover of Credit Suisse is a historic deal for Switzerland and the global banking industry.Credit: AP

The Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. Regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.

The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address client outflows and a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send counterparties fleeing, with potential ramifications for the broader industry.

“It was indispensable that we acted quickly and find a solution as quickly as possible” given that Credit Suisse is a systemically important bank, Swiss National Bank President Thomas Jordan said at a press conference late on Sunday [Monday morning AEDT].

US authorities had been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.

UBS Chairman Colm Kelleher said he will shrink Credit Suisse’s investment bank, a unit that has racked up losses in recent years, while he’s determined to keep the Swiss universal bank, the one business of Credit Suisse that remained a relative bastion of stability in the crisis.

“Let me be very specific on this: UBS intends to downsize Credit Suisse’s investment banking business and align it with our conservative risk culture,” he said at a press conference announcing the deal.

The takeover of the 166 year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation’s railway network. It had grown into global powerhouse symbolising Switzerland’s role as a global financial centre, before struggling to adapt to a changed banking landscape after the financial crisis.

UBS traces its roots back through some 370 separate institutions over 160 years, culminating in the merger of the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, catering to high- and ultra-high net worth individuals globally.

While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over recent years by a series of blowups, scandals, leadership changes and legal issues.

Clients had pulled more than $US100 billion ($148 billion) of assets in the last three months of last year as concerns mounted about its financial health, and the outflows continued even after it tapped shareholders in a 4 billion-franc capital raising.

Bloomberg

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