UBS agreed to buy Credit Suisse for $3.25 billion after a tense week of negotiations brokered by Swiss regulators to protect its banking system and prevent a crisis spreading across global financial markets.
The historic deal comes five days after the Swiss establishment scrambled to end a deepening crisis at Credit Suisse that threatened to collapse the country’s second-biggest lender.
An emergency SFr50bn ($54bn) credit line provided by the Swiss National Bank on Wednesday failed to stem a sharp fall in share prices, fueled by wider market turmoil following the sudden collapse of the California-based Silicon Valley bank.
“The liquidity outflows and market volatility on Friday showed that it is no longer possible to restore market confidence, and that a quick and stable solution is absolutely necessary,” Swiss President Alain Berset said at a press conference in Bern on Sunday evening. “The solution was the takeover of Credit Suisse by UBS.”
UBS will pay about SFr0.76 a share for its own stock, valued at SFr3bn, up from a bid of SFr0.25 worth about $1bn earlier today that was rejected by Credit Suisse’s board. However, the offer is well below Credit Suisse’s closing price of SFr1.86 on Friday.
The Swiss National Bank has agreed to offer UBS a SFr100bn liquidity line backed by a federal default guarantee as part of the deal, the Swiss finance ministry said. The government is also guaranteeing losses of up to SFr9bn, but only after UBS first suffers a SFr5bn loss on a specific portfolio of assets.
Some SFr16bn of Credit Suisse’s additional Tier 1 capital bonds, designed to absorb losses when institutions are in trouble and transfer the risk of bank failure from taxpayers to investors, are being liquidated.
Credit Suisse said in a statement on Sunday evening that the Swiss market regulator had decided that the bond would be “written down to zero”.
This is a developing story. More to follow