UBS will take over Credit Suisse in a historic deal, leading to a consolidation of longtime rivals in Switzerland. The deal was announced Sunday by both banks as well as Swiss National Bank -- the central bank -- and Switzerland's financial authority.
"UBS today announced the takeover of Credit Suisse. This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss National Bank," the central bank said in a statement.
"Both banks have unrestricted access to the SNB's existing facilities, through which they can obtain liquidity from the SNB in accordance with the 'Guidelines on monetary policy instruments,'" the statement said.
To support the deal, the Swiss government will provide a loss guarantee of up to 9 billion Swiss francs ($9.72 billion). Swiss National Bank has agreed to offer 100 billion Swiss francs of liquidity backed by a federal default guarantee.
According to Credit Suisse's press release, all shareholders of the struggling bank will receive 1 share in domestic peer UBS for 22.48 shares in Credit Suisse as merger consideration. "This exchange ratio reflects a merger consideration of [3 billion Swiss francs, or $3.24 billion] for all shares in Credit Suisse," the bank said.
UBS will be the surviving entity upon closing of the merger transaction, the bank announcement said.
In its announcement, UBS stated that the combination is anticipated to result in a company with invested assets totaling more than $5 trillion. Moreover, UBS stated that by 2027, cost reductions of more than $8 billion per year are anticipated.
FINMA, in announcing its approval of the merger, said, "The Credit Suisse Group is experiencing a crisis of confidence, which has manifested in considerable outflows of client funds. This was intensified by the upheavals in the U.S. banking market in March 2023."
"There was a risk of the bank becoming illiquid, even if it remained solvent, and it was necessary for the authorities to take action in order to prevent serious damage to the Swiss and international financial markets," FINMA added.
Due to a steep decline in its stock price and apparently huge client outflows brought on by Silicon Valley Bank's bankruptcy filing and the U.S. financial upheaval, Credit Suisse was forced to obtain a $54 billion lifeline from Swiss National Bank. Before Monday's Asian stock markets opened, Swiss authorities were trying to restore confidence in the nation's financial system.
In a press conference, Swiss Finance Minister Karin Keller-Sutter revealed that she had received calls from British and American colleagues who were concerned about the potential effects of the crisis surrounding Credit Suisse following the failure of Silicon Valley Bank in the United States.
Upon the announcement of the settlement, U.S. Treasury Secretary Janet L. Yellen and Federal Reserve Board Chair Jerome H. Powell issued a statement applauding the solution.
"The capital and liquidity positions of the U.S. banking system are strong, and the U.S. financial system is resilient," the statement said. "We have been in close contact with our international counterparts to support their implementation."
According to sources, the Bank of England also praised the agreement.
"We have been engaging closely with international counterparts throughout the preparations for today's announcements and will continue to support their implementation," it said. "The U.K. banking system is well capitalized and funded, and remains safe and sound."
The agreement merges two organisations who were formerly rivals and referred to as "sisters" due to similar portfolios. In the wake of the 2008 financial crisis, they started to adopt divergent paths.
After acquiring too many risky assets, UBS needed to be bailed out. Afterwards, the bank made the decision to withdraw from various sectors, including fixed-income operations, and concentrate more on wealth management.
At the time, Credit Suisse dodged a bailout, but has since experienced scandals, trading losses, and other issues.
Colm Kelleher, the chairman of UBS, quickly announced a change during a conference.
"UBS intends to downsize Credit Suisse's investment banking business and align it with our conservative risk culture," he said.