UBS bank announced on Sunday the acquisition of its competitor for the equivalent of 3.04 billion euros.
After intense negotiations, the first Swiss banking group UBS will buy its rival Credit Suisse, Swiss Confederation President Alain Berset said on Sunday, believing it was the best way to “restore confidence”.
This solution “is decisive not only for Switzerland (…) but for the stability of the entire financial system”, Alain Berset underlined at a press conference in the presence of the presidents of the two banking giants. , Colm Kelleher of UBS and Axel Lehmann for Credit Suisse.
‘Switzerland must take its responsibility’
Finance Minister Karin Keller-Sutter told the press conference that Credit Suisse’s bankruptcy could have caused “irreparable economic damage”. “For this reason, Switzerland must take its responsibility beyond its own borders.”
The transaction amounts to 3 billion Swiss francs (3.02 billion euros) payable in UBS shares, or 76 cents alone for a Credit Suisse share that was still worth 1.86 Swiss francs on Friday night.
The merger between these giants, which are both part of the highly exclusive club of 30 too big to fail banks, therefore had to be completed and announced in time for the opening of Asian markets to avoid widespread panic.
Race to the abyss
The banking sector has been under pressure since major central banks raised their rates sharply in an attempt to contain inflation. Many institutions have not prepared themselves after years of access to cheap money.
The recent bankruptcy of the United States Silicon Valley Bank and other regional US banks has increased investors’ anxiety and prompted them to sell the securities of the banks perceived as the weak links. This is the case of Credit Suisse, which has gone from resounding scandals to setbacks for 2 years.
And despite management’s best efforts to tout a three-year restructuring plan, nothing worked. Investors voted with their feet and the Zurich establishment struggled to access liquidity at reasonable prices.
A 50 billion Swiss franc lifeline launched by the Swiss central bank on Wednesday, following a black day in the stock market, gave the bank only a brief respite.
Regulatory authorities and the federal government have faced enormous pressure from Switzerland’s main economic partners to clean up the situation before it infects the entire world. According to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in one day at the end of last week.
UBS will benefit from a guarantee of about 9 billion francs from the government, which acts as insurance if problems are discovered in very specific Credit Suisse portfolios, Karin Keller-Sutter said. The Central Bank is also extending a liquidity line of up to CHF 100 billion to UBS and Credit Suisse
UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the benefits of its efforts and it has taken enormous pressure from the authorities to bank to accept to get into the habit of the savior.
Depending on the configuration of the takeover, the Competition Commission could also raise its eyebrows. The discussions also focused on the fate to be reserved for the Swiss branch of Credit Suisse, one of the profitable parts of the group that lost 7.3 billion Swiss francs last year and still counts on “significant” losses in 2023 .
This branch brings together retail banking and lending to SMEs. One of the options being considered by analysts is that of an IPO, which could limit layoffs in Switzerland due to overlaps with UBS’s activities.
On Sunday, the union of bank employees in Switzerland “demands” the participation of the social partners in the discussions, given the “huge” commitment to employment.