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.
The first Swiss banking group UBS is buying its struggling rival Credit Suisse, the President of the Swiss Confederation, Alain Berset, announced on Sunday, saying that it was the best way to “restore trust”.
This solution “is not only decisive for Switzerland (…) but for the stability of the entire financial system” worldwide, assured Mr. Berset.
According to the financial daily Financial Times, UBS has agreed to double the amount originally offered to overcome the reluctance of Swiss credit and one of its main shareholders.
The transaction would be only in UBS shares and would value the Credit Suisse action 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 fusion between these giants, which are both part of the very exclusive club of 30 too big to fail banks, should therefore be closed 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 is 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 Silicon Valley Bank in the United States and other American regional banks 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 Blifeline 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.
Regulators and the federal government have had to deal with immense pressure of Switzerland’s main economic partners to clean up the situation before it contaminates the whole world.
According to the Financial Times and Blick, bank customers withdrew 10 billion Swiss francs in a single day at the end of last week.
According to Bloomberg, UBS requires that authorities bear legal costs and potential losses that 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.
On the other hand, UBSwhich spent several years recovering from the shock of the 2008 financial crisis and a massive state bailout, begins to reap the fruits of his efforts and it took a lot of effort from the authorities to get the bank’s management to agree to put on the mantle of the saviour.
The Competition Commission might also raise eyebrows depending on the configuration of the takeover.
The discussions also concern the fate to be reserved for the Swiss branch of Swiss creditone of the profitable parts of the group which lost 7.3 billion Swiss francs last year and still expects “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 “required” the participation of the social partners in the discussions, given the “enormous” stakes for employment.
And thatand the Stock Exchange will open on Monday Credit Suisse might be a thing of the past”, predicted the tabloid Blick.