On Sunday, Swiss authorities announced that the banking giant UBS has agreed to purchase Credit Suisse, a smaller rival. This historic deal comes as major financial institutions continue to deal with the aftermath of the sudden collapse of Silicon Valley Bank earlier this month and work to prevent a wider crisis.
According to a statement by the Swiss National Bank, "This takeover was made possible with the support of the Swiss federal government, the Swiss Financial Market Supervisory Authority FINMA, and the Swiss National Bank. 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."
Credit Suisse stated in a news release that UBS will acquire the bank for over $3 billion. The purchase is expected to be finalized by the end of 2023, and all of Credit Suisse's current shareholders will receive one UBS share for approximately 22.5 Credit Suisse shares.
Axel P. Lehmann, the chairman of Credit Suisse's board of directors, said in a statement that the proposed merger is the most favorable option available due to the exceptional and unparalleled circumstances that have arisen recently.
Lehmann acknowledged that it has been a difficult period for Credit Suisse and despite the team's arduous efforts to tackle many significant historical problems and implement a new strategy, they have been compelled to find a solution that will provide a sustainable outcome.
During a news conference on Sunday afternoon to address the emergency purchase, Karin Keller-Sutter, president of FINMA, emphasized Switzerland's responsibility to extend its support beyond its own borders. She explained that the agreement was made in an attempt to prevent irreversible economic disruption not only in Switzerland but worldwide as well. Keller-Sutter further stated that the purchase serves as a basis for enhancing stability within Switzerland and across the globe.
Concerns regarding the stability of the global banking system have been spreading throughout the United States and Europe following the recent failures of Silicon Valley Bank and Signature Bank, which occurred within days of each other less than two weeks ago. These failures prompted unprecedented actions by the federal government and some of the largest U.S. banks to strengthen the financial positions of institutions that were threatened by the crisis.
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| FRANK AUGSTEIN / AP |
As part of these efforts, Credit Suisse received nearly $54 billion from the Swiss national bank last week, while a group of 11 major U.S. banks, including Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, agreed to provide $30 billion in funding for First Republic Bank. The four aforementioned banks each committed to contributing $5 billion, while Goldman Sachs and Morgan Stanley pledged $2.5 billion each, and BNY Mellon, PNC Bank, State Street, Truist, and U.S. Bank each agreed to contribute $1 billion.
On Thursday, emergency funding promises briefly halted the continuous decline of both banks' stocks. However, the decline resumed the following day. On Friday, the share price of Credit Suisse fell by 7% and closed at $2.01.
The shares of Credit Suisse, Switzerland's second-largest commercial bank, experienced a sharp drop of 30% on the SIX stock exchange after its largest shareholder, the Saudi National Bank, announced that it would not provide any further funding to the institution. This move was in response to regulations that would apply if the Saudi National Bank held a stake in the Swiss lender above 10%.
Credit Suisse has been struggling for some time and announced its plans to borrow up to 50 billion francs from the national bank on Thursday to support its core businesses and clients as it takes steps to simplify and focus its operations around client needs.
The drop in Credit Suisse's share prices marked a record low for the bank and led to an automatic freeze in trading of its shares on the Swiss market. It also had a significant impact on the shares of other large European banks, with some experiencing double-digit declines.
Although the Swiss national bank has taken steps to strengthen Credit Suisse's financial situation, Capital Economics analysts expressed ongoing concerns about the institution's overall health, particularly due to its lack of profitability for the past two years.
In a note to investors on Friday, Andrew Kenningham, the chief economist for Europe at Capital Economics, noted that while Credit Suisse has a three-year plan to revive its business, it remains unclear whether the markets will allow that much time.
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