Switzerland’s biggest bank, UBS, buys Credit Suisse to halt banking crisis

Like a big fish swallowing a smaller one, UBS, Switzerland’s biggest bank, has swallowed Credit Suisse after it became clear that the latter could not survive an imminent collapse. The two Banks entered into the merger agreement on Sunday on the instruction of the Swiss National Bank and FINMA to restore confidence and stability in the Swiss Banking system. 

“After negotiations that took place during the weekend leading up to the signing of the merger agreement, UBS and Credit Suisse concluded that it would be in the best interest of their shareholders and their stakeholders to enter into the merger,” Credit Suisse said in a statement on Sunday. “This move comes after the Swiss Federal Department of Finance, the Swiss National Bank and FINMA asked both companies to conclude the transaction to restore necessary confidence in the stability of the Swiss economy and banking system.”

Last week, following an unimaginable downward movement in the price of the Bank’s shares, Credit Suisse could not help but borrow about 50 billion Swiss francs from the Switzerland National Bank to help stabilise the situation. Unfortunately, the recent controversies surrounding the second-largest bank in the country and one of the most popular in the world were too weighty for 50 billion Swiss francs to resolve. Hence the need for a merger. 

UBS paid 3 billion Swiss Francs ($3.25 billion) for the deal, which is 60% lesser than the bank’s worth when markets closed on Friday. 

The terms of the merger

Shareholders at Credit Suisse are the most affected by the deal. They will receive the equivalent of just 0.76 Swiss francs in UBS shares for stock that was worth 1.86 Swiss francs when the markets closed on Friday. The statement by Credit Suisse said its shareholders would get “1 share in UBS for 22.48 shares in Credit Suisse as merger consideration.” 

“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” Colm Kelleher, UBS chairman, told reporters. “It is absolutely essential to the financial structure of Switzerland and … to global finance.”

Credit Suisse also assured employees that UBS has promised not to relieve them of their jobs despite the takeover. 

Although the process of the merger has already begun, it is expected to be completed in totality by the end of this year. However, UBS now have the right to appoint “key personnel to Credit Suisse as soon as legally possible.”

“Credit Suisse continues to operate in the ordinary course of business and implement its restructuring measures in collaboration with UBS,” the statement added. 

A merger was the best available outcome

Experts and financial analysts have described the merger as the best decision for the survival of the over 160-year-old bank. Axel Lehmann, the chairman of the Board of Directors at Credit Suisse, said:  “Given recent extraordinary and unprecedented circumstances, the announced merger represents the best available outcome. This has been an extremely challenging time for Credit Suisse and while the team has worked tirelessly to address many significant legacy issues and execute on its new strategy, we are forced to reach a solution today that provides a durable outcome.”

Like Mr Lehmann, the Swiss National Bank said the purpose served by the merger was more than saving the bank from dying and insisted that it would help stabilise the country’s economy. 

“With the takeover of Credit Suisse by UBS, a solution has been found to secure financial stability and protect the Swiss economy in this exceptional situation,” the SNB said in a statement. 

Investors have been losing trust in Credit Suisse for several years due to controversies surrounding the bank’s management and poor investment decisions. In 2022, the Bank recorded its biggest loss since the global economic crisis of 2008. Even at that, investors still managed to keep hope alive until last week when it acknowledged “material weakness” in its bookkeeping. That coupled with the collapse of Silicon Valley Bank in the US, were enough reasons for investors to further lose trust in the institution. While Credit Cruisse was working hard to reduce its losses, UBS was making so much profit. In 2022, UBS earned approximately $7.6 billion. That was almost the opposite of Credit Suisse’s $7.9 billion losses. A merger is the best option at the moment, as it was becoming clear that the bank could no longer redeem its past glory no matter how hard it tried.

Foreign regulators commend merger

Despite the terms and conditions of the merger, the biggest financial regulators in the world seem to be more comfortable with the move. In the US, the country’s treasury and its federal reserve heads have commended the move and promised to work with the Swiss Central Bank in the takeover process.

“We welcome the announcements by the Swiss authorities today to support financial stability. The capital and liquidity positions of the US. banking system are strong, and the US financial system is resilient,” a joint statement by US Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell reads.

President of the European Central Bank, Christine Lagarde, said the merger was a welcomed development, saying it was necessary to restore calm to the financial world.

“I welcome the swift action and the decisions taken by the Swiss authorities,” Lagarde said. “They are instrumental for restoring orderly market conditions and ensuring financial stability.” The ECB president said the bank was ready to provide loans to Eurozone banks whenever necessary.

Like the regulators in the US and Europe, the Bank of England said it was in support of the move by the SNB to merge the two biggest banks in the country.

A statement by the regulatory body said: “We have been engaging closely with international counterparts throughout the preparations for today’s announcements and will continue to support their implementation.”