Switzerland’s largest bank, UBS, agreed on Sunday to buy its beleaguered and longtime rival Credit Suisse for about $3.2 billion, the most drastic bid yet to arrest the financial panic that has swept the globe over the past week.
The deal, hastily brokered over the course of a few days by the Swiss government, signifies the stunning fall of a 166-year-old institution that was once an emblem of Swiss pride. It is perhaps the most sweeping shake-up of the global banking sector since the 2008 financial crisis, when one time financial giants were acquired by rivals to avoid catastrophic meltdowns.
Credit Suisse had been struggling to turn itself around in recent months, but two events last week contributed to its downfall. The bank disclosed on Tuesday that there were “material weaknesses” in its financial reporting. And it was swept up in the broad and intensifying panic around the health of banks. As shares in lenders around the world tumbled after the collapse of Silicon Valley Bank and Signature Bank, markets grew especially wary of Credit Suisse.
According to Karian Keller-Sutter, a member of the Swiss Federal Council, at a news conference, “UBS’s takeover of Credit Suisse has laid the foundation for greater stability both in Switzerland and internationally.”
“We welcome the announcements by the Swiss authorities today to support financial stability,” Janet L. Yellen, the Treasury secretary, and Jerome H. Powell, the chair of the Federal Reserve, said in a joint statement.
Under the terms of the deal, UBS will pay 0.76 of one of its shares for each share of Credit Suisse, valuing it at about 3 billion Swiss francs, or $3.2 billion, a small fraction of its market value as of Friday.
To provide financial support to UBS to carry out the deal, the Swiss National Bank agreed to lend up to 100 billion Swiss francs. And Finma, the Swiss financial regulator, undertook several extraordinary steps to help UBS quickly digest its chief competitor, including wiping out $17 billion worth of Credit Suisse’s bonds and eliminating the need for UBS shareholders to vote on the deal.
As Credit Suisse’s stock and bonds faltered over the past week, analysts and investors increasingly speculated that the Swiss government would force the firm to merge with UBS to avoid chaos. Indeed, several times on Sunday, UBS executives emphasized that the negotiations had been initiated by Swiss regulators.
In the past week, as depositors withdrew billions of dollars of their money and other financial institutions unwound deals with the bank, it became apparent to regulators that Credit Suisse might not be able to open for business absent a takeover by the government or UBS, a person familiar with the negotiations said.
Until the last minute, both sides were unsure that they would be able to pull off a deal because they were far apart on its terms. On Saturday night, UBS offered to buy Credit Suisse for roughly $1 billion, but the bank’s board rebuffed that proposal, according to a person familiar with the negotiations. Credit Suisse had argued that its real estate holdings alone were worth around that amount, another person familiar with the negotiations said.
Still, UBS was the only viable suitor, as the Swiss government was prepared to offer special protective terms only to a Swiss institution, according to one of the people familiar with the deal.
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