📩 20/03/2023 18:15
It was about preventing a bank crash. Swiss UBS takes over Credit Suisse. Switzerland wants to maintain its reputation as a financial centre. The industry should breathe a sigh of relief around the world.
Zurich. “It was a historic, sad and difficult day”. With these words, Credit Suisse Chairman Axel Lehmann described the end of the dramatic struggle for the future of the hard-hit Swiss bank. After a marathon of negotiations, which lasted several days, the solution was found, which Swiss President Alain Berset proudly celebrated Sunday evening as “solid”: UBS is taking over Credit Suisse for three billion francs (a good three billion euros). The bailout was welcomed by central banks around the world.
“This is an emergency rescue,” said UBS Group President Colm Kelleher. Swiss Finance Minister Karin Keller-Sutter was confident that the crisis of confidence that was deadly for Credit Suisse would have spread internationally had the bank gone bankrupt. “This would almost certainly have triggered a financial crisis,” the minister said.
The most important bank merger in Europe since the financial crisis 15 years ago
The takeover of Credit Suisse by UBS is the most important banking merger in Europe since the financial crisis 15 years ago. With the deal, UBS will become a massive institution that will be larger than Deutsche Bank. The Swiss National Bank (SNB) is supporting the takeover with liquidity assistance of CHF 100 billion (approximately € 101 billion) to both banks. In order to mitigate risks for UBS, the federal government also provides a guarantee of CHF 9 billion to cover possible losses. The measures will allow the SNB to provide comprehensive liquidity to Credit Suisse if needed.
European Central Bank President Christine Lagarde stressed that the measures are “very important to restore orderly market conditions and ensure financial stability”. The banking sector in the euro area is resilient and has strong capital and liquidity positions. Federal Reserve Chair Jerome Powell and US Treasury Secretary Janet Yellen talked about a move to support financial stability. The Bank of England also welcomed the “comprehensive package of measures presented by the Swiss authorities to support financial stability”. The UK banking system is well capitalized and financed and remains safe and sound.
Major Swiss bank UBS acquires Credit Suisse for three billion Swiss francs
Credit Suisse is one of the world's largest wealth managers
The Swiss government in Bern was under serious pressure to stabilize the situation and support Credit Suisse. That's because Credit Suisse is one of the world's largest asset managers and one of 30 systemically globally important banks whose failure would shake the international financial system.
“The Federal Council is convinced that takeover is the best solution to restore trust,” said Federal President Berset. Credit Suisse lost customer confidence and liquidity had to be guaranteed. Therefore, SNB provided a loan. The transaction is important to the stability of the Swiss financial centre. A fast stabilizing solution was required. SNB Chairman Thomas Jordan emphasized that reputation is at the heart of the Swiss economy. According to the Financial Market Authority (Finma), the takeover will not fail due to competition law provisions.
Finance Minister: "Taxpayers have little risk"
Finance Minister Keller-Suter said the federal government has given a guarantee of nine billion francs to cover Credit Suisse risks. “Taxpayers have little risk” – any other scenario would cost more. You have a private partner who has taken over Credit Suisse and you have a solid bank. The minister stressed that this is not a state bailout. The federal government only gave a guarantee.
Credit Suisse has suffered a significant loss of investor confidence recently. The share price plunged to a record low after the bank's largest investor refused to raise more capital and the institution continued to struggle with cash outflows.
According to UBS, the merger will create a company with more than $5 trillion in assets under management. UBS CEO Kelleher said the takeover is attractive to UBS shareholders. “But in the case of Credit Suisse, it's an immediate solution.” UBS paid the purchase price with its own shares, corresponding to CHF 0,76 per share of Credit Suisse.
UBS, which has more than 72.000 employees, has a balance sheet total of EUR 2022 billion in 1.030, while Credit Suisse, which has 50.000 good employees, has a balance sheet total of EUR 535.44 billion. In 2022, UBS had a profit of $7,6 billion (currently €7,07 billion). Credit Suisse reported a loss of CHF 7,3 billion (EUR 7,4 billion).