Switzerland’s largest bank UBS has acquired troubled rival Credit Suisse in a powerful merger by Swiss authorities to avoid further disruption in the global banking sector.
The deal is worth 3 billion Swiss francs (3.02 billion euros) payable in shares, or 0.76 francs per share after Credit Suisse was worth 1.86 Swiss francs on Friday.
The merger between the two giant banks, both of the thirty banking institutions that are too big to collapse, had to be completed before the bourse opened on Monday morning to avoid a wave of panic.
Observers hope the move will be enough to spare markets on Monday a widespread panic.
The merger follows efforts in Europe and the United States to support the banking sector since the Silicon Valley and Signature collapses.
On Sunday evening, Swiss President Alain Berset stressed at a press conference attended by bank presidents Colm Kelleher of UBS and Axel Lehmann of Credit Suisse, that this solution “is not only pivotal for Switzerland (…) but for the stability of the entire global financial system.”
Swiss Finance Minister Karin Keller-Sutter declared at the press conference that the bankruptcy of Credit Suisse would have caused “irreparable economic damage.” “Switzerland must therefore assume its responsibilities beyond its borders.”
After their merger, the Swiss central bank said it would provide significant liquidity to the two banks, adding that the deal included 100 billion Swiss francs in financial aid to UBS and Credit Suisse.
“With UBS’s acquisition of Credit Suisse, we have reached a solution to achieve financial stability and protect the Swiss economy in this exceptional situation.”
UBS expects to save about $7 billion in costs annually by 2027. Credit Suisse shareholders will receive one share in UBS for every 22.48 shares they have in Credit Suisse, equivalent to 0.76 Swiss francs per share, he said.
Read: Is Credit Suisse too big to be saved?
According to the finance minister, UBS will benefit from a government guarantee of about 9 billion francs to address any problems that may arise in Credit Suisse’s portfolios.
The central bank also agreed to provide liquidity of up to 100 billion Swiss francs to UBS and Credit Suisse.
The ECA could express its opposition to the formula of the acquisition.
According to December 2022 data, Credit Suisse had $600 billion in assets and $260 billion in deposits. This means that UBS bought these deposits for 3 billion Swiss francs, less than 1 percent of all deposits and 0.6 percent of assets.
Credit Suisse has gone through a number of scandals that have exposed “fundamental weaknesses in internal control,” as acknowledged by the administration itself.
Despite the administration’s efforts to promote a three-year restructuring plan, it did not work.
According to the Financial Times and Blake, the bank’s customers withdrew deposits of 10 billion Swiss francs in a single day late last week, despite the bank taking out a 50 billion franc loan from the Swiss central bank.
The ECB said the Credit Suisse bailout was necessary to restore calm in financial markets and that it remained ready to support eurozone banks with loans if needed.
The bank’s president, Christine Lagarde, said in a statement: “I welcome the swift action and decisions taken by the Swiss authorities. They were necessary to restore orderly market conditions and ensure financial stability.”
“The eurozone banking sector is resilient, with strong capital and liquidity positions. In any case, we have tools in place to provide liquidity support to the eurozone financial system if necessary and to maintain a smooth transition of monetary policy.”
Federal Reserve Chairman Jerome Powell and U.S. Treasury Secretary Janet Yellen said they welcomed the move announced by Swiss authorities to support financial stability.
“Capital and liquidity conditions in the U.S. banking system are strong, and the U.S. financial system is resilient,” Paul Wellen said in a statement, adding that they were in close contact with their international counterparts.
The Federal Reserve meets this week to decide its next move on interest rates as its year-long battle against inflation is hit by a crisis in the financial sector. The Fed’s next move will be closely watched as recent bank failures evoke memories of the 2008 financial crisis.
Coordinated action
The Federal Reserve announced on Sunday that it had joined the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank in a coordinated action to boost liquidity provision through dollar swap arrangements.
The move followed UBS’s purchase of Credit Suisse and signals central bankers’ deep concern about recent turmoil in the financial system in Europe and the United States.
“To improve the effectiveness of swap lines in providing dollar financing, central banks currently offering dollar operations have agreed to increase the frequency of seven-day maturities from weekly to daily,” the Federal Reserve said in a statement issued alongside statements from the other five central banks.
The council said operations would begin on Monday and continue at least until the end of April.
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