UBS agrees to acquire Credit Suisse in 'emergency rescue'
Banking giant UBS is buying its smaller rival Credit Suisse in an effort to avoid further market-shaking turmoil in global banking, Swiss President Alain Berset announced on Sunday night (March 19).
Swiss president Alain Berset, who did not specify the value of the deal, called the announcement “one of great breadth” for the stability of international finance. According to reports, the deal is worth $3.25 billion.
An uncontrolled collapse of Credit Suisse would lead to incalculable consequences for the country and the international financial system.
Also read: Credit Suisse shares sink, lose more than quarter of their value
Credit Suisse is designated by the Financial Stability Board, an international body that monitors the global financial system, as one of the world’s globally systemic important banks. This means regulators believe its uncontrolled failure would lead to ripples throughout the financial system not unlike the collapse of Lehman Brothers 15 years ago.
Sunday’s news conference follows the collapse of two large US banks last week that spurred a frantic, broad response from the US government to prevent any further bank panics. Still, global financial markets have been on edge since Credit Suisse’s share price began plummeting this week.
In a statement, Credit Suisse said it has entered into a merger agreement with UBS.
“Credit Suisse and UBS have entered into a merger agreement on Sunday following the intervention of the Swiss Federal Department of Finance, the Swiss National Bank and the Swiss Financial Market Supervisory Authority FINMA (FINMA). UBS will be the surviving entity upon closing of the merger transaction,” it said.
Under the terms of the merger agreement all shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse, it added.
“UBS benefits from CHF (Swiss francs) 25 billion of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets. Both banks have unrestricted access to the Swiss National Bank existing facilities, through which they can obtain liquidity from the SNB in accordance with the guidelines on monetary policy instruments,” UBS said.
UBS Chairman Colm Kelleher said: “This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction which will preserve the value left in the business while limiting our downside exposure. Acquiring Credit Suisse’s capabilities in wealth, asset management and Swiss universal banking will augment UBS’s strategy of growing its capital-light businesses. The transaction will bring benefits to clients and create long-term sustainable value for our investors.”
The 167-year-old Credit Suisse already received a $50 billion (54 million Swiss francs) loan from the Swiss National Bank, which briefly caused a rally in the banks stock price. Yet the move did not appear to be enough to stem an outflow of deposits, according to news reports.
(With agency inputs)
