Switzerland's two largest banks are set to merge, with UBS announcing its acquisition of Credit Suisse in a deal brokered by the Swiss government. The move follows a tumultuous period for Credit Suisse, which has been hit by a series of financial and political scandals that have impacted its reputation and financial performance.
UBS has agreed to pay $3.2 billion in an all-share deal, representing a large discount compared to Credit Suisse's market capitalization just two days ago.
A History of Trouble
Credit Suisse was founded 166 years ago to help finance Switzerland's rail network. It quickly became a prominent international name in the banking sector and one of the most significant banks in the world.
However, in recent years, the bank's reputation has taken several significant hits, including being linked to a money laundering operation involving a cocaine trafficking ring in Bulgaria and hiring detectives to spy on an executive who left to work at a rival bank.
The most recent crisis for Credit Suisse came to a head last week when the bank announced "material weaknesses" in its financial reporting. The bank's troubles began long before this announcement, with its stock falling by over 80% in the last two years alone.
UBS's acquisition of Credit Suisse represents a significant shift in the banking sector. The combined company will have over $5 trillion in total invested assets, and UBS expects to make $8 billion in cost cuts over the next four years.
The Swiss government helped broker the deal, with an apparent goal of completing the merger before Asian markets open on Monday morning.
As part of the agreement, the Swiss National Bank has offered Credit Suisse and UBS up to $108 billion in liquidity assistance loans, according to a statement.
The Swiss government is also expected to speed up the deal by waiving the six-week waiting period normally required before a merger. Swiss authorities are not requiring UBS to get shareholder approval for the acquisition.
On Thursday, Credit Suisse borrowed $54 billion from the Swiss National Bank. Despite the central bank's offer to provide liquidity to Credit Suisse "if necessary," the bank's share price still slid almost 7% the following day.
Panicked investors and jittery depositors have been pulling billions out of the bank in recent days, leading to concerns that it could become insolvent without emergency measures.
Axel Lehmann, chairman of Credit Suisse Group (left) and Colm Kelleher, chairman of UBS Group, in Bern, Switzerland, on Sunday. UBS agreed to buy Credit Suisse in a historic, government-brokered deal aimed at containing a crisis of confidence that threatened to spread across global financial markets. | Credit to BLOOMBERG
The acquisition of Credit Suisse by UBS comes at a time of ongoing turmoil and alarm in the banking sector, sparked by the collapse of Silicon Valley Bank.
Credit Suisse is a "global systemically important bank," which means that if it were to fail, it could have ripple effects throughout the global economy.
The Swiss government brokered the deal at a price significantly below Credit Suisse's market value in a bid to stabilize the bank and prevent further instability in the banking sector.
The global financial system
The acquisition of Credit Suisse by UBS represents a significant development in the banking sector and highlights the ongoing challenges facing financial institutions in a rapidly changing global economy. The deal was brokered by the Swiss government and provided a lifeline to stabilize the troubled bank.
However, the ongoing challenges facing the banking sector and the need for continued regulatory oversight and reform highlight the importance of careful management and responsible decision-making to ensure the stability and resilience of the global financial system.
Frequently Asked Questions
Why is UBS acquiring Credit Suisse?
UBS is acquiring Credit Suisse in an all-share deal to stabilize the troubled bank and the global banking sector. The move comes after Credit Suisse's reputation and financial performance were hit by a series of scandals, including "material weaknesses" in its financial reporting.
How much is UBS paying for Credit Suisse?
UBS is paying $3.2 billion in an all-share deal for Credit Suisse, which represents a significant discount compared to Credit Suisse's market capitalization just two days before the announcement.
What will the combined company's assets be?
The combined company will have over $5 trillion in total invested assets, making it one of the largest banks in the world.
Why did Credit Suisse agree to the deal with UBS?
Credit Suisse was facing significant financial and reputational challenges, and the merger with UBS provided a lifeline to stabilize the bank. The Swiss government played a crucial role in brokering the deal and offering liquidity assistance.
What does the merger mean for investors?
Credit Suisse investors will receive one UBS share for every 22.48 Credit Suisse shares held. The deal represents a large discount compared to Credit Suisse's market capitalization just two days ago, and UBS expects to make significant cost cuts over the next four years.
What does the merger mean for the global banking sector?
The merger provides stability to the troubled Credit Suisse and reduces the risk of ripple effects throughout the global economy. However, the ongoing challenges in the banking sector highlight the need for continued regulatory oversight and reform.