(AOF) – The suspense over the future of Credit Suisse ended on Sunday evening: the bank in difficulty will be bought by its competitor, UBS, for 3 billion Swiss francs, strongly supported by the authorities of the country. Last week, Credit Suisse shares fell 25% and hit a historic low of 1.55 Swiss francs. Its fall was triggered by statements from Saudi National Bank, its largest shareholder with 9.88% of the capital, according to which it did not plan to commit more money to support it.
Credit Suisse’s stock market crash created a particularly strong shock to financial markets because it is one of 30 systemic banks globally. It also intervened after several resounding bankruptcies in the United States.
Under the terms of the transaction, Credit Suisse shareholders will receive 1 UBS share for every 22.48 Credit Suisse shares held, which equates to 0.76 Swiss francs per share for a total amount of 3 billion Swiss francs. Credit Suisse shares closed Friday at a much higher level of 1.86 Swiss francs.
As part of this operation, UBS benefits from protection of 25 billion francs against, in particular, possible impairments and restructuring costs, as well as additional protection of 50% on non-strategic assets.
“Let’s be clear, as far as Credit Suisse is concerned, this is an emergency rescue. We have structured a transaction that will preserve the value of our business while limiting our risk of loss. The acquisition of Credit Suisse capabilities Swiss Wealth Management, Asset Management and Swiss Universal Banking will reinforce UBS’s strategy of growing its capital-intensive business,” said UBS Chairman Colm Kelleher.
Swiss authorities on the move
The Confederation indicated for its part that it had granted a guarantee of 9 billion francs to UBS in order to reduce the risks that this institution incurs as a result of the acquisition of certain assets that could potentially suffer losses, insofar as these possible losses were to exceed a certain threshold.
The combination of the two banks is expected to generate cost reductions of more than $8 billion per year by 2027 and the new entity will manage more than $5 trillion in assets.
The combined activities in investment banking will represent approximately 25% of risk-weighted assets.
UBS expects the transaction to be accretive to earnings per share by 2027 and the bank will remain capitalized well beyond its target of a 13% capital ratio.
The transaction is not subject to shareholder approval. The Swiss Financial Market Supervisory Authority FINMA has already given the green light.
“This recovery was made possible by the support of the Confederation, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank (SNB),” explained the Swiss authorities. Both banks have unrestricted access to the facilities offered by the SNB, through which they can obtain liquidity.
In addition, Credit Suisse and UBS can obtain liquidity assistance up to a total of CHF 100 billion through a loan covered by a lien in the event of bankruptcy.
ECB and Fed welcome Swiss decisions
Reacting to the takeover of Credit Suisse by UBS, Christine Lagarde said: “I welcome the swift action and the decisions taken by the Swiss authorities. They are helping to restore normal market conditions and guarantee financial stability.
Before adding: “The banking sector in the euro zone is resilient, with solid positions in terms of capital and liquidity. In any event, our policy mix is perfectly equipped to provide liquidity support to the financial system. of the euro area when needed and to preserve the smooth transmission of monetary policy”.
“We welcome the announcements made today by the Swiss authorities to support financial stability. The capital and liquidity positions of the US banking system are strong and the US financial system is resilient. We have been in close contact with our international counterparts to support their implementation,” said Jerome Powell and Treasury Secretary Janet L. Yellen.