UBS Buys Credit Suisse: In a stunning move that shook the financial world, UBS Group AG announced on Sunday that it has agreed to buy its rival Credit Suisse Group AG for $3.2 billion in an all-share deal. The merger, which was orchestrated by the Swiss authorities and supported by the Swiss National Bank (SNB), aims to prevent further turmoil in the global banking system after the recent collapse of two major U.S. banks.
UBS Buys Credit Suisse: The Background
Credit Suisse, one of the world’s largest wealth managers, has been facing mounting troubles since last year, when it was hit by a series of scandals involving its clients and business partners. The bank suffered huge losses from its exposure to Archegos Capital Management, a family office that imploded in March 2021 after failing to meet margin calls on its leveraged bets on stocks. Credit Suisse also faced legal and reputational risks from its involvement with Greensill Capital, a supply-chain finance firm that collapsed in March 2021 amid allegations of fraud and mismanagement.
The situation worsened for Credit Suisse earlier this month, when two U.S. banks – Silicon Valley Bank and Signature Bank – filed for bankruptcy after being unable to cope with rising interest rates and liquidity pressures. The failure of these banks triggered a wave of panic and uncertainty across the global banking system, as investors feared that other banks could be vulnerable to similar shocks.
Credit Suisse was among the most affected by this crisis, as it had significant exposure to both Silicon Valley Bank and Signature Bank through various lending and trading activities. The bank’s share price plunged by more than 50% in two weeks, wiping out billions of dollars in market value. The bank also faced a severe liquidity crunch, as it struggled to meet its obligations and redeem its debt instruments.
To avoid a default or collapse of Credit Suisse, which could have had catastrophic consequences for the Swiss economy and the global financial stability, the Swiss authorities intervened swiftly and decisively. They brokered a deal with UBS, another Swiss banking giant and Credit Suisse’s main competitor, to take over Credit Suisse in exchange for shares.
UBS Credit Suisse Deal
Under the terms of the deal, which was announced late on Sunday night before Asian markets opened on Monday morning:
– UBS will pay $3.2 billion (or 3 billion Swiss francs) for Credit Suisse, which represents a steep discount compared to Credit Suisse’s market capitalization of $6.5 billion (or 6 billion Swiss francs) as of Friday’s close.
– Credit Suisse shareholders will receive one UBS share for every 22.48 Credit Suisse shares they hold.
– The SNB will provide up to $108 billion (or 100 billion Swiss francs) in liquidity assistance loans to support the merger.
– The Swiss government will provide a loss guarantee of up to $9.7 billion (or 9 billion Swiss francs) for a clearly defined part of Credit Suisse’s portfolio that contains risky assets.
– UBS will assume any losses beyond $14.7 billion (or 14 billion Swiss francs) on that portfolio.
– The Swiss government will waive the six-week waiting period normally required before a merger can take place.
– The Swiss government will also waive the requirement for UBS shareholders’ approval for the deal.
The deal is expected to create synergies and cost savings of up to $8 billion (or 7.4 billion Swiss francs) over four years for UBS. It will also create one of
the largest banks in Europe and globally, with over $5 trillion (or 4.6 trillion Swiss francs) in total invested assets.
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