The mega deal is just before the stock exchanges open: the lurching big bank is swallowed up by its larger competitor. The billion-dollar business is supported with significant liquidity support and guarantees.
The badly hit Swiss bank Credit Suisse is being taken over by its larger local rival UBS. This was announced by the Swiss Federal Council and representatives of the two institutes and the supervisory authorities at a media conference on Sunday evening. The Swiss National Bank (SNB) is supporting the takeover with liquidity assistance of CHF 100 billion (around EUR 101 billion) to both banks.
A takeover of the second largest Swiss bank Credit Suisse by UBS is the most significant banking merger in Europe since the financial crisis 15 years ago. This was preceded by a marathon of negotiations that lasted the whole weekend, in which the parties involved from the two banks as well as top representatives from politics and the supervisory authorities took part.
National Bank assumes part of the risks
In order to reduce risks for UBS, the federal government is also issuing a guarantee of CHF 9 billion to cover potential losses. The measures will ensure that the SNB can provide Credit Suisse with extensive liquidity if necessary.
The two banks had been pushed by politicians and the supervisory authorities to merge. The Swiss Federal Council held several meetings on the situation at CS over the weekend.
The Swiss government in Bern was under considerable pressure to stabilize the situation and support Credit Suisse. Because the money house is one of the world’s largest asset managers and is one of the 30 globally systemically important banks whose failure would shake the international financial system. According to media reports, the US authorities were also involved in the talks on the emergency takeover. Both banks are very active there.
International central banks welcomed the measures. European Central Bank (ECB) President Christine Lagarde stressed that the swift action and decisions taken by the Swiss authorities are crucial to restoring orderly market conditions and ensuring financial stability. US Federal Reserve Chairman Jerome Powell and US Treasury Secretary Janet Yellen spoke of a step to support financial stability.
Important for the stability of the financial center
Federal President Alain Berset said that Credit Suisse had lost customer confidence and that liquidity had to be guaranteed. That is why the SNB made a loan available. The takeover will be supported by the Federal Council, it said. This sets the necessary framework conditions. The transaction is important for the stability of the Swiss financial center. A rapid, stabilizing solution was essential: the Federal Council is convinced that the takeover is the best solution for restoring confidence.
Finance Minister Karin Keller-Suter said the federal government had given a guarantee of CHF 9 billion to absorb Credit Suisse risks. SNB President Thomas Jordan emphasized that reputation is central to the Swiss economy. Colm Kelleher, Chairman of the Board of UBS Group, said: This is a huge opportunity for us. The combination of both banks strengthens the position of UBS.
Financial Market Authority welcomes the takeover solution
The Swiss Financial Market Supervisory Authority (Finma) welcomed the takeover solution and the measures taken by the federal government and the Swiss National Bank (SNB). The takeover will result in a larger bank. The existing regulation provides for higher capital cushions for this. According to a statement, FINMA will grant appropriate transitional periods for their establishment.
At Credit Suisse there was a risk of insolvency, even if the bank was still solvent. The authorities had to take measures to avert serious damage to the Swiss and international financial market, according to Finma.
Job cuts not yet foreseeable
It is still unclear how and to what extent the merger between the two major banks will lead to job cuts. For UBS President Kelleher, it’s too early to tell if there will be job cuts. Credit Suisse is trying to allay fears: UBS has expressed confidence that Credit Suisse employees will continue to be employed, the bank said.
The lurching major bank Credit Suisse had recently suffered from a significant loss of investor confidence. The share price had fallen to a record low after the bank’s largest investor ruled out providing further capital and the institution continued to struggle with cash outflows.
National Bank intervenes
The Swiss National Bank (SNB) then initially provided the institute with loans of up to CHF 50 billion (almost EUR 51 billion). For the central bank, financial regulators and government, it was also about preventing a general banking crisis.
In the entire past financial year, Credit Suisse customers had withdrawn assets of around CHF 123 billion. The market value of the traditional bank founded in 1856 has fallen by around two thirds in the past twelve months. At its peak in the mid-nineties, the bank was worth more than 110 billion francs.
Credit Suisse was only worth the equivalent of 7.46 billion euros on the stock exchange at the close of trading last Friday, while UBS was worth the equivalent of around 60.8 billion euros.
The balance sheet total of UBS with more than 72,000 employees amounted to the equivalent of 1,030 billion euros in 2022, and that of Credit Suisse with a good 50,000 employees to the equivalent of 535.44 billion euros. UBS had made a profit of $7.6 billion in 2022 (currently $7.07 billion). Credit Suisse, on the other hand, reported a loss of CHF 7.3 billion (EUR 7.4 billion).