UBS has agreed to buy Credit Suisse after increasing its offer to more than $2 billion following urgent talks today.
The banking giant will pay more than 0.50 francs ($0.5401) a share in its own stock, far below Credit Suisse’s closing price of 1.86 francs on Friday, FT reported, citing sources.
The Swiss National Bank has agreed to offer a $100 billion liquidity line to Credit Suisse as part of the deal, the FT added, citing two people familiar with the matter.
According to the report, UBS has agreed to a softening of a material adverse change clause that would void the deal if its credit default spreads jump.
The agreement follows meetings earlier today in Bern between the Federal Council, the Swiss National Bank, UBS and Credit Suisse to settle the future of the bank.
Chairperson of the Swiss National Bank Thomas Jordan converses on the day he attends a meeting on UBS and Credit Suisse at the Swiss Finance Department, in Bern earlier today
Vice Chair of UBS’ Board of Directors Lukas Gaehwiler (L) and Member of the Group Executive Board of UBS Markus Ronner (R) pictured today in Bern as the Federal Council, the Swiss National Bank and bank reps meet at the Bernerhof to resolve the future of Credit Suisse
The Financial Times, which was the first on Friday to report the prospect of Switzerland’s biggest bank swallowing up Credit Suisse, said UBS had offered to buy it for up to $1billion (£820mn).
The transaction would be worth 25 cents (0.23 Swiss francs) per Credit Suisse share, the FT said.
But the 167-year-old bank pushed back on UBS’ initial offer, with the support of its largest shareholder, believing that it was too low and settling on $2bn.
Authorities urged UBS to get the deal over the line before the stock exchange reopened on Monday in order to reassure investors and avoid a spread of panic on the markets. A merger of this scale would usually take months to complete.
The SonntagsZeitung newspaper called it ‘the merger of the century’.
‘The unthinkable becomes true: Credit Suisse is about to be taken over by UBS,’ the weekly said.
The government, FINMA and the SNB ‘see no other option’, it claimed.
At a press conference on Sunday evening, Swiss President Alain Berset said the deal was supported by the federal council and negotiating parties.
He said the takeover was the best way of restoring confidence in the financial system.
After suffering heavy falls on the stock market last week, Credit Suisse’s share price closed on Friday at 1.86 Swiss francs, with the bank worth just over $8.7billion.
Credit Suisse’s share price has dropped from 12.78 Swiss francs in February 2021 following a string of scandals.
Despite the drop, Credit Suisse were able to negotiate sale terms of twice the initial UBS offer.
While smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion assets under management.
The firm has significant trading desks around the world, caters to the rich and wealthy through its wealth management business, and is a major advisor for global companies in mergers and acquisitions.
Notably, Credit Suisse did not need government assistance in 2008 during the financial crisis, while UBS did.
ECB President Christine Lagarde said the banks ‘are in a completely different position from 2008’ during the financial crisis, partly because of stricter government regulation.
The Swiss bank has been pushing to raise money from investors and roll out a new strategy to overcome an array of troubles, including bad bets on hedge funds, repeated shake-ups of its top management and a spying scandal involving UBS.
Chairman of the Swiss National Bank (SNB) Thomas Jordan (L) with SNB vice chairman Martin Schlegel (2ndR) leaves the Swiss Federal Department of Finance after talks on Credit Suisse bank crisis, in Bern on March 19, 2023
Swiss bank UBS took over troubled rival Credit Suisse for $2bn today
While under Swiss rules, UBS would typically have to consult shareholders over six weeks, but could use emergency measures to skip the consultation period and a shareholder vote, the FT said, citing unnamed sources.
Members of the Swiss government, including President Alain Berset, were reportedly filmed heading into the finance ministry in Bern early on Sunday.
The government did not respond when contacted on Sunday.
David Benamou, chief investment officer of Paris-based Axiom Alternative Investments, said: ‘The Credit Suisse management, even if forced to do so by the authorities, would only choose (a UBS takeover) if they have no other solution.’
The Swiss Bank Employees Association said there was ‘a great deal at stake’ for the 17,000 Credit Suisse staff, ‘and therefore also for our economy’.
‘In addition, tens of thousands of jobs outside of the banking industry would potentially be at risk,’ it added, calling for a task force to be established to manage the situation.
Like UBS, Credit Suisse is one of 30 banks around the world deemed to be Global Systemically Important Banks – of such importance to the international banking system that they are considered too big to fail.
But the market movement seemed to suggest the bank was being perceived as a weak link in the chain.
‘We are now awaiting a definitive and structural solution to the problems of this bank,’ French Finance Minister Bruno Le Maire told Le Parisien newspaper.
Amid fears of contagion after the collapse of two US banks, Credit Suisse’s share price plunged by more than 30 percent on Wednesday to a new record low of 1.55 Swiss francs. That saw the SNB step in overnight with a $54-billion lifeline to shore up investor confidence.
Analysts at American investment bank JPMorgan still said the loan from the SNB would not be enough to soothe investor concerns and ‘status quo was no longer an option’.
Despite shares rising 35% on Thursday, they said a takeover was still the mostly likely outcome for Credit Suisse – predicting correctly that UBS would look to snap up the bank.
In 2022, Credit Suisse suffered a net loss of $7.9bn and expects a ‘substantial’ pre-tax loss this year.
It comes amid urgent talks aimed at saving embattled bank Credit Suisse from a bloodbath when the markets reopen
The headquarters of UBS (L) and Credit Suisse (R) at Paradeplatz in Zurich, Switzerland
The turmoil follows investor concerns over the accuracy of the Credit Suisse’s financial reporting and the bank’s relationship with investors, as well as a string of scandals dating back several years.
The bank slashed staff numbers by 9,000 in October last year, seven months after bringing in new CEO Ulrich Körner to replace António Horta-Osório, who resigned after it was revealed he had breached Covid rules.
That summer, Credit Suisse was found guilty of failing to prevent money laundering by a Bulgarian cocaine trafficking gang.
The extent of the bank’s problems were apparent by February 2023, when it reported its largest annual loss since 2008 – $1.5bn down in the last quarter of the year.
On 28 February it was ruled Credit Suisse had ‘seriously breached’ its risk management obligations in its relationship with disgraced lender Lex Greensill and companies.
Last week, this came to a head when Credit Suisse acknowledged ‘material weakness’ in its financial reporting as it scrapped bonuses for top execs.
The Saudi National Bank – Credit Suisse’s top shareholder – then said it would no longer buy shares due to regulatory issues, tanking share prices a further 25%.
As recently as October, the Saudi bank had looked to capitalise on cheap shares – 55% down following a string of scandals and changes at the top – which they had deemed ‘a steal’ at the time.
On Thursday, Credit Suisse announced it would borrow up to $53.68bn from the Swiss National Bank, hours after it was offered a loan to shore up liquidity.
JPMorgan predicted that the bank would be taken over – most likely by UBS – despite the lifeline from the Swiss National Bank.