LONDON (CNN) Switzerland’s largest bank, UBS, has agreed to buy its ailing rival Credit Suisse as part of an emergency bailout deal aimed at stemming the financial market panic triggered by the collapse of two American banks earlier this month.
“UBS today announced the acquisition of Credit Suisse,” the Swiss National Bank said in a statement. “This acquisition was made possible with the support of the federal government, the Swiss Financial Market Supervisory Authority and the Swiss National Bank,” the central bank added.
The rescue would “ensure financial stability and protect the Swiss economy,” it said.
UBS is paying 3 billion Swiss francs ($3.25 billion) for Credit Suisse, about 60% less than the bank was worth when markets closed on Friday. Credit Suisse shareholders will be largely wiped out, getting just 1 UBS share for every 22.5 Credit Suisse shares they own. Extraordinarily, the transaction will not require shareholder approval after the Swiss government agreed to amend the law to allow it to be completed quickly.
Credit Suisse (CS) has been losing the trust of investors and clients for years. In 2022, it recorded its worst loss since the global financial crisis. But confidence collapsed last week after acknowledging “material weakness” in its accounting and as the demise of Silicon Valley Bank and Signature Bank spread fears of weaker institutions at a time when rising interest rates are eroding the value of some financial assets have undermined.
Shares of the 167-year-old bank fell 25% for the week, money spilled out of mutual funds it manages and at one point accountholders withdrew deposits by more than $10 billion a day, the Financial Times reported. An emergency loan from the Swiss National Bank could not stop the bleeding.
To prevent Monday’s meltdown from spreading to the global financial system, Swiss authorities had been pushing hard for a private sector bailout, with limited government support, while plans were reportedly being considered – full or partial nationalization.
The emergency takeover was agreed after days of hectic negotiations between financial regulators in Switzerland, the United States and the United Kingdom. UBS (UBS) and Credit Suisse are among the top 30 banks in the global financial system and together have nearly $1.7 trillion in assets.
“Given the recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome,” said Axel Lehmann, Chairman of Credit Suisse, in a statement.
“This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many important legacy issues and implement its new strategy, today we are compelled to find a solution that will deliver a lasting outcome.”
The global headquarters of UBS and Credit Suisse are just 300 meters apart in Zurich, but the banks’ fortunes have been on very different paths lately. UBS shares are up 15% over the past two years, posting a profit of $7.6 billion in 2022. It was valued at about $65 billion as of Friday, according to Refinitiv.
Credit Suisse shares have lost 84% of their value over the same period, posting a loss of $7.9 billion over the past year. It was worth just $8 billion late last week.
Credit Suisse dates back to 1856 and has its roots in the Schweizerische Kreditanstalt (SKA), which was founded to finance the expansion of the railway network and the industrialization of Switzerland.
Not only is it the second largest bank in Switzerland, it also manages the wealth of many of the world’s richest people and provides global investment banking services. At the end of 2022, it employed over 50,000 people, 17,000 of them in Switzerland.
The Swiss National Bank announced it would provide a 100 billion Swiss francs ($108 billion) loan to UBS and Credit Suisse to boost liquidity.