UBS Accepts to Acquire Credit Suisse in a $3 Billion Deal with Swiss National Bank’s Backing
UBS has accepted to acquire Credit Suisse in a deal worth more than $3 billion, after increasing its initial offer by $1 billion. In addition, the Swiss National Bank (SNB) has agreed to provide UBS with a $100 billion liquidity line as part of the agreement. Discussions between the two largest Swiss banks are reportedly being led by SNB and the country’s regulator, Finma.
Currently, Credit Suisse is considered a globally significant bank and Switzerland’s second largest lender. It is the latest major bank to be hit by a liquidity crisis. Last week, bank runs hit US lenders Silvergate Capital, Signature Bank, and, most notably, Silicon Valley Bank. All three collapsed, as they were heavily involved in the technology, start-up, and cryptocurrency sectors. The US authorities seized these lenders and placed them under receivership.
SVB and Signature Bank have now become the second and third largest bank failures in the US, following Washington Mutual, which closed down in 2008. First Republic Bank, a fourth US lender, is at risk after a volatile week of trading, as its share price has fallen significantly following the collapses of SVB, Signature, and Silvergate. However, 11 large American banks, including JP Morgan, Bank of America, Citigroup, and Wells Fargo, have come to its aid, announcing $30 billion in deposits to help shore up the troubled financial institution.
If the UBS-Credit Suisse merger goes through, it will create one of the world’s largest financial institutions. UBS currently holds approximately $1.1 trillion in assets, while Credit Suisse holds about $575 billion.
According to FT, BlackRock, the US investment giant, was reportedly preparing an offer to buy Credit Suisse on Saturday. However, BlackRock has denied the report.
UBS has insisted on a clause that nullifies the agreement if its credit default spreads increase by 100 basis points or more, according to FT sources. The US Federal Reserve has also given its approval for the agreement to proceed, sources said.
On Thursday, the Swiss central bank announced it was launching a $54 billion bailout of Credit Suisse, in the first such move by a central bank since the 2008 crisis. On Saturday night, the Swiss Cabinet met at the finance ministry in Berne for a series of presentations from government officials, SNB, Finma, and banking sector representatives, FT reported.
The government is preparing emergency measures to expedite the takeover and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders, so the deal can be sealed immediately, sources told FT. “The agreement’s framework was designed by Swiss regulators to provide maximum stability to the country’s banking system,” they said.
UBS will significantly downsize Credit Suisse’s investment bank, so the combined entity will account for only one third of the merged group, FT reported. However, the deal’s current conditions sheet does not specify what will happen to Credit Suisse’s individual business divisions and just describes a 100% takeover of the group.
In brief, the acquisition of Credit Suisse by UBS, worth over $3 billion, with the backing of Swiss National Bank, is expected to create one of the world’s largest financial institutions. The deal was designed to provide maximum stability to the banking system in Switzerland.
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