UBS Group AG has agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at containing a crisis of confidence that had started to spread across global financial markets.
The Swiss bank is paying 3 billion francs ($3.3 billion) for its rival in an all-share deal that includes extensive government guarantees and liquidity provisions. The price per share marked a 99% decline from Credit Suisse's peak in 2007.
The Swiss National Bank is offering a 100 billion-franc liquidity assistance to UBS while the government is granting a 9 billion-franc guarantee for potential losses from assets UBS is taking over. The regulator Finma said about 16 billion francs of Credit Suisse bonds will become worthless to ensure private investors help shoulder the costs.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address client outflows and a massive rout in Credit Suisse's stock and bonds over the past week following the collapse of smaller U.S. lenders. A liquidity backstop by the Swiss central bank midweek failed to end a market drama that threatened to send counterparties fleeing, with potential ramifications for the broader industry.
"It was indispensable that we acted quickly and find a solution as quickly as possible" given that Credit Suisse is a systemically important bank, Swiss National Bank President Thomas Jordan said at a press conference late Sunday.
The Federal Reserve and Treasury Department welcomed the deal, as did the European Central Bank. U.S. authorities had been working with their Swiss counterparts because both lenders have extensive operations in the US, Bloomberg reported earlier. Authorities sought an agreement before markets opened again in Asia.
U.S. equity futures rose early Monday as investors weighed the agreement and central bank moves to boost dollar liquidity. The Fed and five other central banks announced coordinated action on Sunday to boost liquidity in U.S. dollar swap arrangements, the latest effort by policymakers to ease growing strains in the global financial system.
UBS Chairman Colm Kelleher said he will shrink Credit Suisse's investment bank, a unit that has racked up losses in recent years, likely ending the dreams of a CS First Boston spinoff. The Swiss universal bank, the one business of Credit Suisse that has remained a relative bastion of stability, is expected to stay with UBS, despite concerns about concentration in the domestic market.
"Let me be very specific on this: UBS intends to downsize Credit Suisse's investment banking business and align it with our conservative risk culture," he said at a press conference announcing the deal. He said it's too early to say how many jobs may be cut after the deal.
The government's loss-guarantee was necessary because there was little time to do due diligence and Credit Suisse has hard-to-value assets on its books that UBS plans to wind down, Kelleher said. If that results in losses, UBS would assume the first 5 billion francs and the federal government the next 9 billion francs.
The takeover of the 166 year-old lender marks a historic event for the nation and global finance. The former Schweizerische Kreditanstalt was founded by industrialist Alfred Escher in 1856 to finance the build-out of the mountainous nation's railway network. It had grown into global powerhouse symbolizing Switzerland's role as a global financial center, before struggling to adapt to a changed banking landscape after the financial crisis.
UBS traces its roots back through some 370 separate institutions over 160 years, culminating in the merger of the Union Bank of Switzerland and the Swiss Bank Corp. in 1998. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world's largest wealth managers, catering to high- and ultrahigh-net-worth individuals globally.
While Credit Suisse avoided a bailout during the financial crisis, it has been hammered over recent years by a series of blowups, scandals, leadership changes and legal issues. Clients had pulled more than $100 billion of assets in the last three months of last year as concerns mounted about its financial health, and the outflows continued even after it tapped shareholders in a 4 billion-franc capital raise.
"This was the only possible solution," Swiss Finance Minister Karin Keller-Sutter said, adding it was needed to stabilize the Swiss as well as international financial markets. Credit Suisse, she said, was no longer able to survive on its own.
—With assistance from Myriam Balezou and Bastian Benrath.
