Credit Suisse and Switzerland’s biggest bank UBS have merged with UBS being the surviving entity, the Zürich-based wealth manager said in an official press release.
The merger was requested by the Swiss Federal Department of Finance, the Swiss National Bank, and the Swiss Financial Market Supervisory Authority (FINMA) to restore confidence in the stability of the Swiss economy and banking system.
The emergency takeover was agreed to after days of frantic negotiations involving financial regulators in Switzerland, the United States, and the United Kingdom.
All shareholders of Credit Suisse will receive 1 share in UBS for 22.48 shares in Credit Suisse as merger consideration. The merger is expected to be completed by the end of 2023. This exchange ratio reflects a merger consideration of CHF (Swiss Francs) 3 billion ($3.23 billion) for all shares in Credit Suisse; UBS will assume up to $5.4 billion of the bank’s losses.
On Sunday, Credit Suisse was informed by FINMA that the regulator has determined that Credit Suisse’s Additional Tier 1 Capital (deriving from the issuance of Tier 1 Capital Notes) in the aggregate nominal amount of approximately CHF 16 billion ($17 billion) will be written off to zero.
In consideration of the unique circumstances affecting the Swiss economy as a whole, the Swiss Federal Council is issuing an emergency ordinance (Notverordnung) tailored to this particular transaction. Most importantly, the merger will be implemented without the otherwise necessary approval of the shareholders of UBS and Credit Suisse to enhance deal certainty.
The merger has been implemented without the approval of the shareholders of UBS and Credit Suisse to enhance deal certainty. Credit Suisse will continue to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS. The Chairman of the Board of Directors of Credit Suisse has expressed that this merger represents the best outcome given recent circumstances.
The Swiss central bank said on Sunday that the agreement includes 100 billion Swiss francs ($108 billion) in liquidity support for UBS and Credit Suisse.
US Banks’ Collapse Triggered Credit Suisse Fallout
Last week, Credit Suisse shares lost a quarter of their value. As it attempted to recover from scandals that harmed trust, the bank was forced to tap $54 billion in central bank funding.
For years, Credit Suisse (CS) had been losing the trust of investors and customers. It suffered its worst loss since the global financial crisis in 2022. However, confidence fell last week after it admitted to “material weaknesses” in its bookkeeping and as the failures of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when rising interest rates have eroded the value of some financial assets.
The dismantling of Credit Suisse is the latest ramification of Silicon Valley Bank’s demise. Despite being a relatively small lender that mostly operated in the United States, SVB’s rapid decline reawakened in investors and depositors a fear of potential risks lurking at other institutions, especially as central banks raise interest rates to combat rising inflation.
Global banking stocks fell dramatically last week, erasing nearly a half-trillion dollars in market value. Regulators and major lenders went above and beyond to prevent a larger disaster, including the largest US banks leading a $30 billion rescue of the San Francisco- based First Republic Bank. But no international lender was hit as hard as Credit Suisse, whose shares fell to new lows last week amid a steady stream of bad news.
For what it is worth, the UBS deal announced on Sunday marks the demise of one banking icon while strengthening another.