Credit Suisse, a troubled Swiss bank that has been losing customers’ deposits, has agreed to a discounted buyout offer from its rival UBS. The announcement of the deal was made by Switzerland’s president, Alain Berset, accompanied by executives from both banks and the chairman of 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,” the Swiss National Bank said in a statement.
The bank, UBS, has declared that it will acquire Credit Suisse for 3 billion francs ($3.25 billion) in a transaction that involves exchanging stocks. The deal values each share of Credit Suisse at 0.76 francs.
Credit Suisse’s closing price on Friday was 1.86 francs per share. This means that UBS’s proposed acquisition price of 0.76 francs per share is significantly lower than the market value of Credit Suisse. It has been reported that UBS’s initial bid for Credit Suisse was only 0.25 francs per share, according to the Financial Times.
According to UBS, the transaction includes a downside protection of 25 billion francs to support adjustments in valuation, purchase price, and costs associated with restructuring. Additionally, UBS will have a 50% downside protection on non-core assets. It is worth noting that the acquisition does not require approval from shareholders.
Furthermore, the Swiss financial regulator has announced that Credit Suisse’s AT1 securities, which are valued at 16 billion francs, will be written off completely.
“This is a commercial solution and not a bailout,” said Karin Keller-Sutter, the Swiss finance minister. “Bankruptcy would have been the highest risk.”
The Swiss National Bank has announced that both UBS and Credit Suisse can borrow up to 100 billion francs each in a liquidity assistance loan, with Credit Suisse having the added benefit of receiving a federal default guarantee for the loan. The Federal Reserve has been collaborating with the Swiss National Bank on the acquisition, given the significant operations of both banks in the United States.
Swiss Justice Minister Karin Keller-Sutter has had discussions with U.S. Treasury Secretary Janet Yellen and U.K. Chancellor Jeremy Hunt regarding the acquisition, noting that it will result in job cuts affecting “many thousands” of Credit Suisse employees.
UBS has projected that the merger of the two banks will result in cost reductions of over $8 billion per year by 2027. The bank’s Chairman, Colm Kelleher, has emphasized that the investment bank will not represent more than 25% of risk-weighted assets.
Credit Suisse has experienced a decline due to losses related to the Archegos family office, as well as having to freeze $10 billion in supply chain funds sold through the bank that were managed by Greensill Capital. The bank has lost money for five consecutive quarters, leading to significant outflows, with wealthy clients withdrawing nearly $100 billion in the fourth quarter.