UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that threatened to spread across global financial markets.
The Swiss bank is paying more than $2 billion for its rival, according to people with knowledge of the matter. It will be an all share deal and priced at a fraction of Credit Suisse’s close on Friday, when the bank was valued at about 7.4 billion francs ($8 billion.) The people asked not to be identified because the deal isn’t public yet.
The Swiss National Bank has agreed to offer a $100 billion liquidity line to UBS as part of the deal, according to the Financial Times, which reported the agreement first. Swiss authorities are poised to change the country’s laws to bypass a shareholder vote, the paper reported, citing people close to the matter.
Representatives for the two banks declined to comment.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank mid-week failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
US authorities have been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.
UBS had earlier tabled an offer of about $1 billion, or 0.25 francs a share for Credit Suisse, which the firm had pushed back on, people with knowledge of the matter said earlier on Sunday.
UBS agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump, the FT also reported people familiar with the matter as saying. The material adverse change clause applies for the period between the signing and closing of the deal, the people said.
The takeover of the 166 year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation’s railway network. It had grown into global powerhouse symbolizing Switzerland’s role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.
UBS traces its roots back through some 370 separate institutions over 160 years, culminating in the merger of the Union Bank of Switzerland and the Swiss Bank Corporation in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, catering to high- and ultra-high net worth individuals globally.
While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over recent years by a series of blowups, scandals, leadership changes and legal issues. Clients had pulled more than $100 billion of assets in the last three months of last year as concerns mounted about its financial health, and the outflows continued even after it tapped shareholders in a 4 billion-franc capital raise.
–With assistance from Myriam Balezou.
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UBS (Union of Banks in Switzerland) has announced that it will be purchasing Credit Suisse for more than $2 billion, following a government-brokered deal designed to restore public confidence in the banking industry.
The Swiss government’s “Save the Banks” initiative is a response to the turbulent times that have affected the sector since the 2008 global financial crisis. The plan is multi-faceted and includes measures to increase bank lending and promote financial stability.
The merger of UBS and Credit Suisse will create the largest Swiss bank, with combined assets of over $1.2 trillion and more than 60,000 employees. According to UBS CEO Sergio Ermotti, the move will provide a much-needed boost to the Swiss financial industry.
“This is yet another important milestone in our effort to restore the reputation and strength of the Swiss banking sector,” said Ermotti. “The combination of the two highly-respected institutions will be a powerful force in the global markets, and a significant source of employment and wealth creation in Switzerland.”
The move will only be approved by the Swiss Financial Market Supervisory Authority after the bank’s management and board of directors have been consulted. The bankers have already expressed their support for the deal, suggesting that it will enable them to compete more effectively in a global financial landscape increasingly dominated by larger institutions.
UBS hopes to complete the merger by the end of 2021, with Credit Suisse becoming a fully-integrated subsidiary of UBS. The combined assets under management of the two banks will make them one of the largest wealth managers in the world.
The decision to pursue the merger reflects a shared commitment between the banks and the government to strengthen the Swiss economy, safeguarding jobs and ensuring that the financial markets remain accessible to international customers. It’s clear that both UBS and Credit Suisse are looking to the future.