UBS has offered to buy Credit Suisse for up to $1bn, with Swiss authorities planning to change the country’s laws to bypass a shareholder vote on the deal as they rush to finalize the deal before Monday.
The all-share deal between Switzerland’s two biggest banks will be signed as soon as Sunday evening and will be priced at a fraction of Credit Suisse’s closing price on Friday, but target shareholders will be devastated, four people with direct knowledge of the matter said. Stated the situation.
The offer was announced on Sunday morning with a price of SFr0.25 a share to be paid in UBS stock, well below Credit Suisse’s closing price of SFr1.86 on Friday, the people said. UBS has also insisted on a material adverse change that cancels the deal if its credit default rises by 100 basis points or more, they added.
The situation is moving quickly and there is no guarantee that conditions will remain or that a deal will be reached, all the people stressed.
Some said the current terms were unfair to Credit Suisse and its shareholders. Others criticized the plan to overturn general rules of corporate governance by preventing a UBS shareholder vote.
There has been limited contact between the two lenders and terms are heavily influenced by the Swiss National Bank and regulator Finma, the people said. The US Federal Reserve has given its consent for the deal to go ahead, they added.
While the current terms value Credit Suisse’s equity at up to $1bn, this figure does not reflect additional provisions made by the Swiss National Bank to ensure the deal goes through.
The two sides have been in discussions with regulators since Wednesday, when Credit Suisse asked the SNB to provide an emergency SFr50bn ($54bn) credit line.
When this backstop failed to stem a fall in its share price and prevent panicked customers from withdrawing their money, the central bank pushed for a merger after becoming concerned about the viability of the country’s second-largest lender.
The Financial Times reported that deposit outflows from Credit Suisse topped SFr10bn at the end of a single day last week. Customers withdrew SFr111bn from the group in the final three months of last year.
On Saturday night, the Swiss cabinet gathered at the finance ministry in Bern for a series of presentations by government officials, the SNB, market regulator Finma and representatives from the banking sector.
The government is preparing emergency measures to fast-track the takeover and plans to introduce legislation that would bypass the usual six-week consultation period required for UBS shareholders so the deal could be sealed immediately, the people said.
The structure of the deal is designed by Swiss regulators to provide maximum stability to the country’s banking system, people briefed on the matter said. Swiss authorities have already obtained prior approval from relevant regulators in the US and Europe who are expected to issue consolidated statements today.
UBS will dramatically shrink Credit Suisse’s investment bank, so that the combined entity will make up no more than a third of the merged group, two of the people said.
However, the current term sheet for the deal does not specify what will happen to Credit Suisse’s individual business divisions, and only outlines a 100 percent takeover of the group.
Negotiators have code-named Credit Suisse as Cedar and UBS as Ulmus, people briefed on the matter said.
UBS is seeking concessions and protections from the government, particularly from any pending legal cases and regulatory investigations of Credit Suisse that could result in fines or damages, the FT reported. However, it is unlikely to receive compensation from any loss on assets, said one of the people involved.
UBS also wants to be allowed to phase in any additional demands it faces under global rules on capital that govern the world’s biggest banks.
The SNB, UBS, Credit Suisse and Finma declined to comment.
Additional reporting by Sam Jones
