UBS agreed to buy Credit Suisse for $3.25bn after a frantic weekend of negotiations brokered by Swiss regulators to safeguard its banking system and attempt to prevent a crisis spreading across global financial markets.
The historic deal follows five days in which the Swiss establishment raced to end a deepening crisis at Credit Suisse that threatened to topple the country’s second-largest lender.
An emergency SFr50bn ($54bn) credit line provided by the Swiss National Bank on Wednesday failed to arrest a steep decline in the share price, which was exacerbated by wider market turmoil caused by the sudden collapse of California-based Silicon Valley Bank.
“On Friday the liquidity outflows and market volatility showed it was no longer possible to restore market confidence, and a swift and stabilising solution was absolutely necessary,” Swiss president Alain Berset said at a press conference in Bern on Sunday evening. “This solution was the takeover of Credit Suisse by UBS.”
UBS will pay about SFr0.76 a share in its own stock, worth SFr3bn, up from a bid of SFr0.25 earlier today worth around $1bn that was rejected by the Credit Suisse board. However, the offer remains far below Credit Suisse’s closing price of SFr1.86 on Friday.
The Swiss National Bank has agreed to offer a SFr100bn liquidity line backed by a federal default guarantee to UBS as part of the deal, the Swiss finance ministry said. The government is also providing a loss guarantee of up to SFr9bn, but only after UBS has borne the first SFr5bn of losses on certain portfolios of assets.
Some SFr16bn of Credit Suisse’s Additional Tier 1 capital bonds, which are designed to take losses when institutions run into trouble and to transfer the risk of a bank failure from taxpayers to investors, are being wiped out.
Credit Suisse said in its statement on Sunday evening that the Swiss market regulator had determined the bonds would “be written off to zero”.
This is a developing story. More to follow