In one of the biggest bank mergers, The Union Bank of Switzerland, better known as UBS, has taken over the 167-year-old Credit Suisse on March 19 for $3.25 billion. The Switzerland government-backed deal came after a weekend consisting of emergency dialogues between the two banks and the country’s financial regulators.
The government-brokered deal was aimed at ending a stemming crisis unleashed by the failure of two American banks, name them here, which had started to spread across global financial markets. Shares of Credit Suisse plunged by 63% in early trading on March 20. On the same day, Riyadh-based Saudi National Bank hit a loss of 80% on its Credit Suisse investment, as reported by CNBC. .
The Swiss National bank said in a statement on March 19 that “UBS today announced the takeover of Credit Suisse,” and that the rescue would “secure financial stability and protect the Swiss economy.” Furthermore, the Swiss federal government announced that it would grant a guarantee against potential losses worth $9.6 billion to reduce further risk. . It will also allocate significant aid to both UBS and Credit Suisse in the form of liquidity of up to 100 billion Swiss francs.
After the important announcement, UBS chairman Colm Kelleher spoke from the Swiss capital and stressed the fact that Credit Suisse was a “very fine asset we are determined to keep”. He further said that they would be running down the investment banking part of Credit Suisse and aligning it with their conservative risk culture.
On the issue of potential job cuts, Kelleher said it was “too early” to say what would happen about jobs. “We need to do this rationally, thoughtfully when we’ve sat down and analysed what we need to do,” he said. The press release announcing the merger said that the employment of the staff of Credit Suisse will be continued. However, Bloomberg reported on March 20 that even before the government-brokered takeover was to take place, the Swiss lender was in the process of cutting 9,000 jobs.
The Swiss Financial Market Supervisory Authority reportedly told international counterparts on March 18 that “they regard a deal” with UBS as the “only option” to prevent a “collapse in confidence” in Credit Suisse (make this one full quote rather than 3 partial ones).
The merger is expected to be consummated by the end of 2023. Until then, the restructuring programme launched by Credit Suisse will be implemented in collaboration with UBS. The Swiss financial regulators sent out words of assurance to the depositors letting them know that their banking services will continue without interruption and will remain accessible to all.
The exceptional merger between both banks will be an all-share transaction, with Credit Suisse shareholders receiving one UBS share for every 22.48 Credit Suisse shares held, which is equivalent to 0.76 Swiss francs per share, well below Friday’s closing price of 1.86 Swiss francs.
Experts have said that a merger was the best decision, as Credit Suisse has been struggling substantially for many years, with its worst recorded loss in 2022 since the global financial crisis in 2008. Experts have also acknowledged ‘material weakness’ in its bookkeeping. Credit Suisse Chairman Axel Lehmann told a press conference on March 19 that, “the accelerating loss of confidence and the escalation over the last few days have made it clear that Credit Suisse can no longer exist in its current form.”
Global financial market regulators have applauded the merger between both banks. U.S. Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell said in a joint statement on March 19 that they welcome the announcements by the Swiss authorities aimed at supporting financial stability. They further stated, “The capital and liquidity positions of the U.S. banking system is strong, and the U.S. financial system is resilient.”
Christine Lagarde, President of the European Central Bank said on March 19 that the banking sector remains resilient but the ECB stands at the ready to help banks maintain enough cash on hand to fund their operations if the need arises. In a statement by The Bank of England, they stated, , “We have been engaging closely with international counterparts in the implementation. The UK banking system is well capitalized and funded, and remains safe and sound.”
Edited by Elena Potek