UBS’s takeover of Credit Suisse: What you need to know

In an emergency rescue agreement intended to quell the fear that the bankruptcy of two American banks earlier this month had sparked on the financial markets, Switzerland’s largest bank, UBS, has agreed to purchase its struggling rival Credit Suisse.

“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

Credit Suisse is being purchased by UBS for 3 billion Swiss francs ($3.25 billion), which is nearly 60% less than the bank was valued on Friday at the close of business. By obtaining just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs on Friday, Credit Suisse stockholders will be essentially wiped out.

Exceptionally, the deal won’t require shareholder approval since the Swiss government agreed to alter the law to remove any legal ambiguity.

Investors and clients had been losing trust in Credit Suisse (CS) for years. It had its worst loss since the global financial crisis in 2022. Its admission of “material weakness” in its bookkeeping and the failure of Silicon Valley Bank and Signature Bank, which stoked concerns about weaker institutions at a time when rising interest rates have reduced the value of some financial assets, respectively, caused confidence to collapse last week.

According to the Financial Times, the 167-year-old bank’s shares dropped 25% over the course of the week as money flowed out of investment vehicles it administers and account holders at one point withdrew deposits totaling more than $10 billion each day. The Swiss National Bank’s emergency loan of around $54 billion was insufficient to halt the haemorrhage.

Here’s what you should know about the takeover:

What is the latest with the negotiations?

• The rescue agreement for 3 billion Swiss francs ($3.2 billion), which Swiss officials mediated and disclosed late on Sunday, is intended to boost trust in the nation’s banking sector rather than profit the buyer. UBS is, nonetheless, recovering the greatest value from the rubble.

• Jerome Powell, the head of the U.S. Federal Reserve, and Janet Yellen, the secretary of the Treasury, expressed their appreciation for the Swiss government’s announcement to support financial stability. “The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient,” they said in a statement, adding they have been in close contact with international counterparts.

• The agreement involves liquidity support for UBS and Credit Suisse from the Swiss central bank in the amount of 100 billion Swiss francs ($108 billion).

• The European Central Bank stated on Sunday that the Swiss government’s rescue of Credit Suisse was “important” in bringing about a period of stability on the financial markets, but it remained prepared to provide loans to eurozone banks if needed.

• According to a source quoted by the news agency Reuters, the negotiations are running into serious hurdles and a merger of the two banks might necessitate the elimination of 10,000 employees.

Why is Credit Suisse in crisis?

• The value of Credit Suisse shares fell by 25% during the past week.

• As it struggles to recover from a spate of crises that destroyed the trust of investors and consumers, the bank was forced to rely on $54 billion in central bank assistance.

• In recent years, Credit Suisse has seen numerous crises. In February 2021, shares were valued 12.78 Swiss francs ($13.84).

• The bank experienced a $7.9 billion net loss in 2022 and anticipates a “substantial” pre-tax deficit in 2019.

How significant is Credit Suisse?

• One of the biggest wealth managers in the world, Credit Suisse is also one of 30 globally systemically significant banks, whose bankruptcy would have an impact on the whole financial system.

• Credit Suisse operates local asset management, wealth management, investment banking, and a Swiss bank.

• At the end of 2022, it employed slightly over 50,000 people and managed assets of 1.3 trillion Swiss francs ($1.4 trillion), a decrease from 1.6 trillion a year earlier.

• Credit Suisse is the private bank for a huge number of rich clients, including people and businesses, with more than 150 branches in around 50 countries.