© Reuters. UBS Group and Credit Suisse logos are seen on this illustration taken March 18, 2023. REUTERS/Dado Ruvic/Illustration
BERN (Reuters) – UBS agreed to purchase rival Swiss financial institution Credit Suisse for 3 billion Swiss francs ($3.23 billion) in inventory and agreed to imagine as much as 5 billion francs ($5.4 billion) in losses, in a shotgun merger engineered by Swiss authorities to keep away from extra market-shaking turmoil in international banking.
The deal consists of 100 billion Swiss francs ($108 billion) in liquidity help for UBS and Credit Suisse from the Swiss central financial institution.
To allow UBS to take over Credit Suisse, the federal authorities is offering a loss assure of a most of 9 billion Swiss francs for a clearly outlined a part of the portfolio, the federal government stated.
This might be activated if losses are literally incurred on this portfolio. In that eventuality, UBS would assume the primary 5 billion francs, the federal authorities the subsequent 9 billion francs, and UBS would assume any additional losses, the federal government stated.
Switzerland’s regulator FINMA stated that there was a danger that Credit Suisse might have change into “illiquid, even if it remained solvent, and it was necessary for the authorities to take action”.
Credit Suisse Additional Tier 1 shares with a nominal worth of round 16 billion francs ($17.2 billion) might be written down fully after the Swiss authorities offered help for UBS’ takeover of Credit Suisse, FINMA stated.
The 167-year-old Credit Suisse has been the largest title ensnared in market turmoil unleashed by the current collapse of U.S. lenders Silicon Valley Bank and Signature Bank (NASDAQ:), forcing it to faucet $54 billion in central financial institution funding final week.
“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss central financial institution stated.
Authorities had been scrambling to rescue Credit Suisse, among the many world’s largest wealth managers, earlier than monetary markets reopened on Monday.
UBS and Credit Suisse are each in a gaggle of the 30 international systemically vital banks watched carefully by regulators, and Credit Suisse’s failure would ripple all through all the monetary system.
The announcement got here in a make-or-break weekend after some rivals grew cautious of their dealings with the struggling Swiss lender, and its regulators urged it to pursue a cope with UBS.
FINMA, which stated it had permitted the takeover, stated current measures to stabilize itself have been “not enough to restore confidence in the bank, however, and more far-reaching options were also examined.”
The two banks’ fortunes have diverged sharply over the previous yr. UBS earned $7.6 billion in revenue in 2022, whereas Credit Suisse misplaced $7.9 billion. Credit Suisse’s shares are down 74% from a yr in the past, whereas UBS’s are comparatively flat.
The Swiss authorities stated that it was additionally giving UBS a assure of 9 billion Swiss francs “assume potential losses” from property as a part of the transaction.
UBS’s chief government officer Ralph Hamers and Chairman Colm Kelleher will stay on the helm of the mixed financial institution.
“The transaction reinforces UBS’s position as the leading universal bank in Switzerland,” UBS stated.
Executives foreshadowed structural adjustments within the offing.
Kelleher stated it could wrap up working Credit Suisse’s funding financial institution, however added that it was too early to say something about potential job cuts.
Kelleher additionally stated they might hold Credit Suisse’s home enterprise, regardless of hypothesis that it might be spun off amid competitors issues.
Credit Suisse’s Chairman Axel Lehmann referred to as the merger the “best available outcome”.
($1 = 0.9280 Swiss francs)
