Swiss rival UBS in a government-backed deal has rescued troubled bank Credit Suisse after a weekend of emergency talks in Switzerland between the two banks and the country’s financial regulators.
The Swiss National Bank said the deal was the best way to restore the confidence of financial markets and to manage risks to the economy. Meanwhile, Credit Suisse said it is not expecting “any disruption to client services”.
“We are fully focused on ensuring a smooth transition and seamless experience for our valued clients and customers,” a spokesperson for the bank said.
Credit Suisse shareholders were deprived of a vote on the deal and will receive one share in UBS for every 22.48 shares they own, valuing the bank at $3.15 billion. However, at the close of business on Friday, last week, Credit Suisse was valued at around $8bn.
Nonetheless, the deal has achieved what regulators set out to do – secure a results awaiting close of market today, Monday March 20, 2023.
The merger comes amid fears over the global banking system, with Credit Suisse being the latest casualty of a crisis of confidence that has seen two mid-sized US banks fail and another propped up by emergency funding.
In a statement, Switzerland’s central bank said “a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation”.
The federal government said in order to reduce any risks for UBS it would grant a guarantee against potential losses worth $9.6 billion. The Swiss central bank has also offered liquidity assistance of up to $110 billion.
Global Financial Institutions Praise the Deal
Global financial institutions were quick to praise the deal. The Bank of England said it welcomed the comprehensive set of actions set out by the Swiss authorities. “We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation,” it said. The Bank of England thus, noted that the UK banking system is “well capitalised and funded, and remains safe and sound”.
Central banks to boost flow of US dollars. Christine Lagarde, President of the European Central Bank, also said she welcomed the “swift action” of the Swiss authorities.
“They are instrumental for restoring orderly market conditions and ensuring financial stability. The euro area banking sector is resilient, with strong capital and liquidity positions,” Ms Lagarde said.
The comments from the European Central Bank President were echoed in the US. Treasury Secretary Janet Yellen and Federal Reserve Board chairman Jerome Powell both said the announcement by the Swiss authorities supported “financial stability”. “The capital and liquidity positions of the US banking system are strong, and the US financial system is resilient,” they said.
It can be recalled that despite an emergency $54 billion loan from the Swiss National Bank, shares of Credit Suisse lost 25% over the course of last week. The price of financial contracts designed to protect investors against possible losses on its bonds soared to record levels. More than $450 million was pulled from European and US funds managed by the bank between last week Monday and Wednesday.
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