Business
Credit Suisse Bought for US$3 Billion by Swiss Rival UBS
Credit Suisse has been rescued by its Swiss rival UBS in a government-backed deal on Sunday. The announcement came after a weekend of emergency talks between the two banks and Switzerland’s financial regulators in Switzerland.
UBS Group AG, founded and headquartered in Switzerland, is a multinational investment bank and financial services firm. According to the Swiss National Bank, the agreement is the best way to restore financial market confidence and manage economic risks.
The Bank of England welcomed the “comprehensive set of actions,” the BBC reported.
Credit Suisse shareholders will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15 billion (£2.6 billion).
Credit Suisse was valued at around $8 billion (£6.5 billion) at the close of business on Friday.
However, the agreement accomplished what regulators set out to do: secure a result before the financial markets opened on Monday.
In a statement, Switzerland’s central bank said, “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation”.
To mitigate any risks for UBS, the federal government announced a $9.6 billion (£7.9 billion) guarantee against potential losses. The Swiss central bank has also offered up to $110 billion (£90 billion) in liquidity assistance.
Global financial institutions quickly applauded the transaction between Credit Suisse and UBS.
The Bank of England said it welcomed the “comprehensive set of actions” set out by the Swiss authorities.
“Throughout the preparations for today’s announcements, we worked closely with international counterparts and will continue to support their implementation.”
It said the UK banking system was “well capitalized and funded and remains safe and sound”.
The UK Treasury also said it welcomed the merger and the British government would continue to engage with the Financial Conduct Authority (FCA) and the Bank of England “as is usual”.
Because both UBS and Credit Suisse have operations in London, the FCA said on Sunday that it was “minded to approve” the takeover to support financial stability.
“The FCA remains closely engaged with UK and international regulatory partners to monitor market developments,” the watchdog said.
Christine Lagarde, President of the European Central Bank, said she welcomed the “swift action” of the Swiss authorities.
“They are instrumental in restoring orderly market conditions and ensuring financial stability. “The eurozone banking sector is resilient, with strong capital and liquidity positions,” stated Ms. Lagarde.
The remarks of the European Central Bank President were echoed in the United States.
Treasury Secretary Janet Yellen and Federal Reserve Board Chairman Jerome Powell said the Swiss authorities’ announcement supported “financial stability”.
“The US banking system’s capital and liquidity positions are strong, and the US financial system is resilient,” they said.
Credit Suisse is the latest and most significant casualty of a confidence crisis that has already resulted in the failure of two mid-sized US banks and an emergency industry whip-round for another. But this is not the case. Switzerland’s second-largest lender was considered one of the world’s top 30 most important banks, so the Swiss authorities rushed through this takeover.
Although the causes of each failure vary slightly, the main factor has been a sharp rise in global interest rates, which has reduced the value of even safe investments in which banks keep some of their money. This has alarmed investors, causing all bank share prices to fall, with the weakest banks suffering the most.
The EU, US, and UK financial authorities have supported this agreement, emphasizing that banks are strong and people’s savings and deposits are secure. The acid test for whether this Swiss rescue has calmed financial markets will be when they open on Monday, which is why completing this on Sunday night was critical.
Following the announcement on Sunday night, UBS chairman Colm Kelleher said Credit Suisse was a “very fine asset we are determined to keep” in Bern, Switzerland.
“This acquisition is appealing to UBS shareholders, but let us be clear: this is an emergency rescue for Credit Suisse,” he added.
Mr. Kelleher stated that UBS would acquire Credit Suisse’s investment banking division.
The chairman of UBS said it was “too early” to predict what would happen to jobs: “We need to do this in a rational and thoughtful way after we’ve sat down and analyzed what we need to do,” he said.
The weekend deal comes after the Swiss National Bank’s emergency $54 billion (£44.5 billion) lifeline on Wednesday failed to reassure markets, and Credit Suisse shares fell 24%, sparking a wider sell-off on European markets.
The 167-year-old bank is losing money and has had many problems recently, including allegations of money laundering.
