Swiss investment bank UBS is set to acquire rival bank Credit Suisse in a $3.25 billion deal in what the former has called an “emergency rescue”.
The move comes after Credit Suisse found itself on the brink of collapse; in February, it confirmed that clients had pulled 110 billion Swiss francs worth of funds in the fourth quarter and it had suffered its biggest annual loss since the global financial crisis.
“This acquisition is attractive for UBS shareholders but, let us be clear, as far as Credit Suisse is concerned, this is an emergency rescue,” UBS chairman Colm Kelleher said in a statement.
“We have structured a transaction which will preserve the value left in the business while limiting our downside exposure.”
UBS is reportedly seeking government guarantees of $6 billion to cover the cost of winding down parts of Credit Suisse and any litigation that arises during the potential takeover, with sources telling Reuters that figure could change depending on what scenario plays out.
If the two banks do combine, 10,000 jobs could be axed, another source told the publication.
The acquisition has the support of the Swiss Federal Department of Finance, FINMA (the Swiss Financial Market Supervisory Authority) and the Swiss National Bank. Both banks have unrestricted access to the Swiss National Bank’s existing facilities through which they can obtain liquidity.
The combination of the two businesses is expected to generate annual run-rate cost reductions of more than US$8 billion by 2027. The transaction is still subject to shareholder approval.
What happened at Credit Suisse?
FINMA, which has approved the merger of the two major banks, has said Credit Suisse is facing “a crisis of confidence”, which has manifested in considerable outflows of client funds.
The Swiss regulator said that, after the volatility in the US banking market this month, Credit Suisse, which was founded back in 1856, was at risk of becoming illiquid – even if it remained solvent. In order to prevent serious damage to the Swiss and international financial markets, it was necessary for the authorities to take action.
To put it into perspective, the share price of Credit Suisse has declined nearly 75% in the last 12 months. It’s declined by more than 40% alone since February this year, when the bank revealed there were ‘material weaknesses’ in its 2021 and 2022 financial reporting processes – and that clients had made significant fund withdrawals.
What would happen if Credit Suisse collapsed?
Credit Suisse is seen as one of just 30 ‘global systematically important banks’. This is a kind of bank or financial institution whose failure might just trigger a worldwide financial crisis. In other words, they’re too big to fail. It’s up there with other big banks like UBS, Wells Fargo, Morgan Stanley, JPMorgan Chase and Deutsche Bank. As of 2022, the bank had over 50,000 employees and 1.3 trillion Swiss francs (AU$2 trillion) under management.
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