Friday, April 12, 2024

UBS set to acquire troubled Credit Suisse to ensure Swiss financial sector stability

UBS’s $1 Billion offer for Credit Suisse is not being favourably accepted by the bank’s majority owners

Union Bank of Switzerland, the country’s second-largest bank is set to acquire Credit Suisse, Swiss authorities said on Sunday, in a deal to combine Switzerland‘s top two banks designed to contain a widening crisis of confidence in global finance.

The deal includes 100 billion Swiss francs in liquidity assistance for UBS and Credit Suisse.

Credit Suisse, which was founded 167 years ago, has been the biggest name affected by the market instability unleashed by the recent collapse of U.S. financial institutions Silicon Valley Bank and Signature Bank, forcing it to utilize $54 billion in central bank financing last week.

“With the acquisition of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the Swiss central bank said. 

UBS taking over Credit Suisse

UBS Group AG is offering to acquire Credit Suisse Group AG for as much as $1 billion, a deal that the troubled Swiss firm is rejecting with assurance from its majority shareholder. Credit Suisse, which ended Friday with a market value of about 7.4 billion francs ($8 billion), believes the offer is beneath market value and would damage shareholders who have deferred stock, according to people with knowledge of the matter.

The UBS offer was communicated on Sunday with a price of 0.25 francs a share to be paid in stock. UBS also insisted on a material adverse change that voids the deal if its credit default spreads jump by 100 basis points or more, the Financial Times reported. Credit Suisse closed down 8% to 1.86 francs at the close on Friday.

Swiss authorities are seeking to broker a deal that would address a rout in Credit Suisse that sent shock waves across the global financial system over the past week when panicked investors dumped its shares and bonds following the collapse of several smaller US lenders.

A liquidity backstop by the Swiss central bank briefly alleviated any further declines, but the market drama carries the risk that clients or counterparties would continue fleeing, with potential ramifications for the broader industry.

The complex discussions over what would be the first combination of two global systemically important banks since the financial crisis have seen Swiss and US authorities collaborating, according to people with knowledge of the matter. Talks accelerated Saturday, with all parties pushing for a resolution that can be executed quickly after a week that saw accelerated client withdrawals and counterparties’ resistance to execute any further transactions with Credit Suisse.

UBS agreed to buy its embattled rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) Sunday, with Swiss regulators playing a key part in the deal as governments looked to stem a contagion threatening the global financial system.

“With the acquisition of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss and global economy in this exceptional situation,” read a statement from the Swiss National Bank, which noted the central bank worked with the Swiss government and the Swiss Financial Market Supervisory Authority to bring about the combination of the country’s two largest banks.

The terms of the deal will see Credit Suisse shareholders receive 1 UBS share for every 22.48 Credit Suisse shares they hold.