Switzerland’s largest bank UBS, pushed by the authorities, agreed on Sunday to buy its rival Credit Suisse for 2 billion dollars, according to the Financial Times, agreeing to double down in extremis to prevent a debacle and a movement of panic in the markets on Monday. According to the financial daily, UBS agreed to double the amount initially proposed to overcome the reluctance of Credit Suisse and one of its main shareholders.
The transaction would be made only in UBS shares and would value the Credit Suisse share at a price of 50 cents, instead of the 25 initially proposed, which remains much lower than the share price on Friday at the close (1.86 francs).
The transaction is examined in Bern by the federal government, already meeting urgently on Thursday and Saturday. According to CH Media, the government must inform the parties concerned and then hold a press conference to unveil the details of the agreement.
The merger between these giants, which are both part of the very closed club of 30 too big to fail banks, should therefore be completed and announced in time for the opening of the Asian markets. The hope being that this may be enough to prevent widespread panic.
The banking sector has been under stress since the major central banks have raised their rates sharply in an attempt to control inflation. Many institutions have failed to prepare following years of having access to cheap money.
The recent bankruptcy of the Silicon Valley Bank in the United States and other regional American banks has increased the anxiety of investors and pushed them to sell the securities of the banks considered to be the weak links. This is the case of Credit Suisse, which for 2 years has gone from resounding scandals to reverses.
And despite the efforts of its management to tout a three-year restructuring plan, nothing worked. Investors voted with their feet and the Zurich establishment struggled to access liquidity at reasonable prices.
A lifeline of 50 billion Swiss francs launched Wednesday by the Swiss central bank, following a black day on the stock market, gave only a brief respite to the bank.
The regulatory authorities and the federal government have had to deal with immense pressure from Switzerland’s main economic partners to clean up the situation before it contaminates the whole world.
According to the Financial Times and Blick, the bank’s customers withdrew 10 billion Swiss francs in a single day late last week.
According to the Bloomberg agency, UBS demands that the public authorities bear legal costs and potential losses which can amount to billions of francs.
On Saturday, the discussions stumbled on the investment banking activity, according to the financial agency, one of the scenarios under study being a resumption only of asset and wealth management with a sale of this branch.
By contrast, UBS, which spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, is beginning to reap the rewards of its efforts and it took tremendous effort from the authorities to that the management of the bank agrees to put on the habit of the saviour.
The Competition Commission might also raise eyebrows depending on the configuration of the takeover.
The discussions also focus on the fate to be reserved for the Swiss branch of Credit Suisse, one of the profitable parts of the group which lost 7.3 billion Swiss francs last year and is still counting on “substantial” losses in 2023.
This branch brings together retail banking and loans to SMEs. One of the avenues considered by analysts is that of an IPO, which might limit layoffs in Switzerland due to duplication with UBS’s activities.
On Sunday, the union of bank employees in Switzerland “demanded” the participation of the social partners in the discussions, given the “enormous” stakes for employment.
“And when the stock market opens on Monday, Credit Suisse might be a thing of the past,” predicted the tabloid Blick.
