BERN, March 19 (Reuters) – UBS ( UBSG.S ) agreed to buy rival Swiss bank Credit Suisse ( CSGN.S ) for 3 billion Swiss francs ($3.23 billion) in stock and agreed to take up to 5 billion francs (US$5.4 billion). ) in losses, in a shotgun merger engineered by Swiss authorities to avoid more market-shaking turmoil in global banking.
The deal includes 100 billion Swiss francs ($108 billion) in liquidity support for UBS and Credit Suisse from the Swiss central bank.
To enable UBS to take over Credit Suisse, the federal government is providing a loss guarantee of a maximum of 9 billion Swiss francs for a clearly defined part of the portfolio, the government said.
This will be activated if losses actually occur on this portfolio. In that case, UBS would assume the first 5 billion francs, the federal government the next 9 billion francs and UBS would assume further losses, the government said.
Switzerland’s regulator FINMA said there was a risk that Credit Suisse could have become “illiquid, although it remained solvent, and it was necessary for the authorities to intervene”.
Credit Suisse Additional Tier 1 shares with a nominal value of around 16 billion francs ($17.2 billion) will be fully written down after the Swiss government backed UBS’s takeover of Credit Suisse, FINMA said.
The 167-year-old Credit Suisse has been the biggest name caught up in market turmoil sparked by the recent collapse of US lenders Silicon Valley Bank and Signature Bank, which forced it to tap into $54 billion in central bank funding last week.
“With UBS’s takeover of Credit Suisse, a solution has been found to ensure financial stability and protect the Swiss economy in this unusual situation,” the Swiss central bank said.
Authorities had been scrambling to save Credit Suisse, among the world’s biggest asset managers, before financial markets reopened on Monday.
UBS and Credit Suisse are both in a group of 30 global systemically important banks closely watched by regulators, and Credit Suisse’s failure would ripple through the entire financial system.
The announcement came during a make-or-break weekend after some rivals grew cautious in their dealings with the struggling Swiss lender and its regulators urged it to pursue a deal with UBS.
FINMA, which said it had approved the takeover, said recent measures to stabilize itself “were not enough to restore confidence in the bank and more far-reaching options were also being explored.”
The fortunes of the two banks have diverged sharply in the past year. UBS made $7.6 billion in profit in 2022, while Credit Suisse lost $7.9 billion. Credit Suisse’s shares are down 74% from a year ago, while UBS’s is relatively flat.
The Swiss government said it also gave UBS a guarantee of 9 billion Swiss francs “assuming potential losses” from assets as part of the transaction.
UBS chief executive Ralph Hamers and chairman Colm Kelleher will remain at the helm of the combined bank.
“The transaction strengthens UBS’s position as the leading universal bank in Switzerland,” UBS said.
The leaders announced structural changes in the offing.
Kelleher said it would end the operation of Credit Suisse’s investment bank, but added it was too early to say anything about potential cuts.
Kelleher also said it would keep Credit Suisse’s domestic business, despite speculation it could be spun off due to competition concerns.
Credit Suisse chairman Axel Lehmann called the merger “the best available result”.
($1 = 0.9280 Swiss francs)
Reporting by John Revill, Noele Illien, John O’Donnell, Oliver Hirt and Tom Sims; Editing by Riham Alkousaa, Paul Carrel and Hugh Lawson
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