UBS Bank announced on Sunday the takeover of its competitor for the equivalent of 3.04 billion euros.
After intense negotiations, Switzerland’s first banking group UBS will buy its competitor Credit Suisse, Swiss Confederation President Alain Berset said on Sunday, believing it was the best way to “restore confidence”.
This solution “is not only crucial for Switzerland (…), but for the stability of the entire financial system” worldwide, emphasized Alain Berset at a press conference in the presence of the presidents of the two banking giants, Colm Kelleher for UBS and Axel Lehmann for Credit Suisse.
“Switzerland must live up to its responsibilities”
Finance Minister Karin Keller-Sutter said at the press conference that the failure of Credit Suisse could have caused “irreparable economic damage”. “That’s why Switzerland must assume its responsibility beyond its own borders.”
The deal is worth 3 billion Swiss francs (3.02 billion euros), payable in UBS shares, or just 76 cents for a Credit Suisse share, which was worth 1.86 Swiss francs as of Friday night.
The merger of these giants, both part of the very exclusive club of 30 Too-Big-to-Fail banks, therefore had to be consummated and announced in time for the opening up of Asian markets to prevent widespread panic.
Race to the Abyss
The banking sector has come under pressure since major central banks hiked interest rates sharply to control inflation. Many institutions have not prepared after years of access to cheap money.
The recent bankruptcy of Silicon Valley Bank in the United States and other regional American banks has heightened investor concerns, urging them to sell the securities of banks seen as weak links. Such is the case at Credit Suisse, which has gone from resounding scandals to setbacks in two years.
And despite management’s efforts to tout a three-year restructuring plan, nothing worked. Investors voted with their feet and the Zurich establishment struggled to find liquidity at reasonable prices.
A lifeline of 50 billion Swiss francs, launched by the Swiss central bank on Wednesday after a black day in the stock market, gave the bank only brief respite.
The regulatory authorities and the federal government had to face immense pressure from Switzerland’s most important economic partners to rectify the situation before it contaminates the whole world. According to the Financial Times and Blick, the bank’s customers withdrew 10 billion francs in a single day at the end of last week.
guarantees
UBS benefits from a federal guarantee of around CHF 9 billion, which serves as insurance if problems are discovered in very specific Credit Suisse portfolios, said Karin Keller-Sutter. The central bank is also granting UBS and Credit Suisse a liquidity line of up to CHF 100 billion
UBS, which recovered for several years from the shock of the 2008 financial crisis and a massive government bailout, is beginning to reap the rewards of its efforts and it took tremendous pressure from the authorities for management to accept the bank to get used to the Savior.
Depending on how the takeover is structured, WEKO could also raise eyebrows. Discussions also focused on the fate of Credit Suisse’s Swiss branch, one of the profitable parts of the group, which lost 7.3 billion Swiss francs last year and expects “significant” losses again in 2023.
This branch brings together retail banking and lending to SMEs. One of the avenues analysts are considering is that of an IPO, which could limit layoffs in Switzerland due to duplication with UBS’s operations.
On Sunday, the union of bank employees in Switzerland “demanded” the participation of the social partners in the discussions given the “enormous” stakes for employment.
Jeanne Bulant with the AFP journalist BFMTV