Dhe crisis-ridden Credit Suisse (CS) loses its independence after 167 years and ends up in the arms of UBS. The Swiss industry leader is taking over CS in a share swap at a price of CHF 3 billion. The parties involved agreed on this on Sunday evening after intensive and hectic negotiations led by the Swiss National Bank (SNB), the Swiss Financial Market Supervisory Authority (Finma) and the Swiss government.
The merged bank will manage more than $3.4 trillion in assets. “This acquisition is attractive for UBS shareholders, but one thing is clear – as far as Credit Suisse is concerned, this is an emergency rescue,” said Colm Kelleher, Chairman of the Board of Directors. He will also be president of the new bank, UBS boss Ralph Hamers the chairman of the board.
Purchase price well below market value
The price of 3 billion francs is well below the stock market value of CS of 7.4 billion francs. According to a report by the “Financial Times”, UBS initially offered only one billion, which CS and its major shareholders rejected as too low. In order to reduce any risks for UBS, the Swiss government is also granting UBS a CHF 9 billion guarantee to cover potential losses from certain assets that UBS is assuming as part of the transaction. According to Karin Keller-Sutter, Switzerland’s Minister of Finance, this guarantee only comes into effect if any losses at UBS exceed a certain threshold. It’s like insurance. The Swiss National Bank is also granting CS and UBS extraordinary liquidity assistance totaling CHF 200 billion. Relying on emergency law, the government has decreed that the takeover does not require the approval of the shareholders of the two banks.
The primary goal was to protect Switzerland’s interests, said Keller-Sutter. It is about making a contribution to stabilizing the international financial markets, protecting the Swiss financial center and also protecting the Swiss economy. “A failure of CS would have resulted in serious economic upheavals in Switzerland and in other countries.” And the alternative of direct state entry would have been an enormous risk for Switzerland. The takeover by UBS is the best measure to restore confidence in CS.
Last Thursday it looked as if Credit Suisse could at least get a reprieve. On that day, the National Bank had given the scandal- and loss-plagued big bank a liquidity injection of 50 billion francs, which initially also boosted the badly battered share price. But on Friday, the CS share on the stock exchange went down again. And the risk premiums for CS bonds also remained at a record high, which shows that the market continued to have doubts about the bank’s future viability. Apparently, unsettled customers continued to withdraw funds on a large scale.
The driving forces behind the takeover are the Swiss central bank and Finma. They feared that a “bank run” and the possible collapse of Credit Suisse sooner or later would not only severely damage the Swiss financial center, but also fuel the already tense situation in the banking industry due to the collapse of Silicon Valley Bank, and so on could shake the international financial system. As a systemically important bank with total assets of CHF 531 billion and a strong presence in investment banking, CS has business ties with financial institutions around the world. At the end of the past week, some of them apparently already issued the slogan internally to shut down business with the Swiss.