Swiss bank UBS is taking over ailing competitor Credit Suisse to the tune of 3 billion Swiss francs (€3.03 billion), the Swiss government announced in a press conference Sunday evening, March 19th.
The announcement comes after a weekend of negotiations, brokered by Swiss regulators, during which UBS made an initial offer of $1 billion. After a refusal by Credit Suisse, UBS finally agreed to a tripling of that amount on Sunday, as well as to taking on up to $5.4 billion in losses.
The public-private joint effort is intended to stave off a breakdown in confidence following the recent collapses of Silicon Valley Bank and Signature Bank from spilling over into the broader financial system. Credit Suisse is one of 30 banks which are deemed systemically important in global finance.
In addition, the Swiss central bank guarantees a loan of up to 100 billion Swiss francs (over €101 billion).
To facilitate the 167-year-old Credit Suisse’s takeover, the Swiss government has taken recourse to emergency measures. Within that legal framework, the customary six-week consultation period can be skipped while votes by both banks’ shareholders are not required.
The takeover should be fully completed by the end of 2023, international media report.
Last week, still reeling from confidence-eroding scandals, Credit Suisse shares plunged, losing a quarter of their value. The development forced the bank to seek aid from the Swiss central bank, which threw it a $54 billion lifeline.
The deal was “one of great breadth for the stability of international finance,” said Swiss President Alain Berset as he announced it. “An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.”
While viewing Sunday as a “historic, sad and very challenging” day for Switzerland and the global financial markets, Credit Suisse Chairman Axel Lehmann called the sale “a clear turning point,” adding that the focus is now on the future and in particular on the 50,000 Credit Suisse employees, 17,000 of whom are in Switzerland.
That same day, in a bid to reassure investors, the U.S. Federal Reserve published a press release that stated it had joined with the central banks of Canada, England, Japan, the EU, and Switzerland in a coordinated action to enhance market liquidity.
In turn, the European Central Bank assured that “the euro area banking sector is resilient, with strong capital and liquidity positions,” but that it would support banks within the euro zone through loans if needed. President Christine Lagarde welcomed the “swift action and the decisions taken by the Swiss authorities, as they “are instrumental for restoring orderly market conditions and ensuring financial stability.”
It remains to be seen whether the deal, or these assurances, will prove sufficient in calming global stock markets.
