UBS has agreed to acquire Credit Suisse in an all-share deal worth more than $2 billion, in a government-brokered historic deal. The deal aims to address the massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders.
The plan was negotiated in hastily arranged crisis talks over the weekend. Credit Suisse’s fall marks its succumbing to a crisis of confidence that threatened to spread to global financial markets.
Credit Suisse was once one of the stalwarts of the global financial system, going toe-to-toe with Wall Street titans before scandals, legal issues and management upheaval undermined investor confidence.
A brokered by the Swiss government, UBS Group AG, Switzerland’s largest banking group, has agreed to acquire Credit Suisse Group AG, once one of the stalwarts of the global financial system.
The all-share deal, which has priced at around one-fourth of its closing price at the end of the trading session on March 17, when the lender valued at about $8 billion, is valued at more than $2 billion.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address a massive rout in Credit Suisse stock and bonds over the past week following the collapse of smaller US lenders.
A liquidity backstop by the Swiss central bank failed to end a market drama that threatened to send clients or counterparties fleeing, with potential ramifications for the broader industry.
US authorities have been working with their Swiss counterparts because both lenders have operations in the US and are considered systemically important in Switzerland.
Authorities sought an agreement before markets opened again in Asia. The sale to UBS avoids a disorderly collapsed, which would have had implications for the Swiss banking sector and the country’s economy as a whole.
However, the deal marks the final fall from grace for Credit Suisse, which has succumbed to a crisis of confidence that threatened to spread to global financial markets.
For 166 years, Credit Suisse helped position Switzerland as a linchpin of international finance and went toe-to-toe with Wall Street titans before a steady drumbeat of scandals, legal issues, and management upheaval undermined investor confidence.
While the decay was years in the making, the end came quickly. In the aftermath of the collapse of Silicon Valley Bank last weekend, long-suffering quickly became a focal point of concern.
After top shareholder Saudi National Bank told Bloomberg Television on Wednesday that it would “absolutely not” invest more in the lender, a rout was on.
A $54 billion financing backstop from the Swiss central bank, sealed in the dead of night on Thursday to calm jitters, failed to become the lifeline Credit Suisse had hoped.
With the country’s banking sector at risk, Swiss authorities stepped in to push UBS to become a reluctant white knight. Even as market anxiety intensified, Credit Suisse insiders acted as if they could still control the situation.
Although the mood was somber, managers organized town hall meetings to quell employee fears, and investment advisers fielded calls from clients to discuss liquidity concerns, according to people with knowledge of the discussions.
For Switzerland, the blow could be significant. Home to 243 banking groups and 24 branches of foreign banks, the country’s stability and wealth are largely reliant on the finance industry.
The combined assets of UBS and Credit Suisse are roughly double the size of Switzerland’s gross domestic product, and Sunday newspapers from tabloids to broadsheets were filled with stories about the looming demise of a national icon.
The Swiss government “regrets that CS wasn’t able to master its own difficulties — that would have been the best solution,” Finance Minister Karin Keller-Sutter said at a press conference in Bern on Sunday.
“Unfortunately, the loss of confidence from the markets and customers was no longer able to be halted mortem of this process before considering further measures.”
The acquisition marks a turning point for UBS and the Swiss financial industry. While UBS has emerged relatively unscathed from the financial scandals that have plagued the industry in recent years.
The acquisition will allow the bank to expand its presence in key markets and consolidate its position as the dominant force in Swiss banking. However, the acquisition also presents significant challenges for UBS.
Integrating Credit Suisse’s operations and culture into its own will be a complex and time-consuming process, and there are likely to be significant redundancies as the two banks rationalize their operations.
The acquisition also raises questions about the future of the Swiss financial industry. With the demise of Credit Suisse, Switzerland has lost one of its most iconic and influential financial institutions.
While UBS will continue to operate in Switzerland, the acquisition is likely to lead to a significant reshaping of the Swiss banking sector, with potential implications for the country’s economy as a whole.
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