(Bloomberg) — UBS Group AG agreed to buy Credit Suisse Group AG in a historic, government-brokered deal aimed at a crisis of confidence that has begun to ripple through global financial markets.
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The Swiss bank is shelling out more than $2 billion for its rival, according to people with knowledge of the matter. It will be an all-share deal and will be priced at a fraction of Credit Suisse’s closing on Friday, when the bank was valued at about 7.4 billion francs ($8 billion). Swiss officials and the presidents of the two banks announced the deal at a news conference late Sunday.
The Swiss National Bank is offering UBS a $100 billion liquidity line, while the government is guaranteeing 9 billion francs to cover potential losses from the assets being acquired by UBS. Regulator FINMA said the move would “trigger a complete write-down of the nominal value of all AT1 shares of Credit Suisse” amounting to 16 billion francs.
The plan, negotiated in hastily arranged crisis talks over the weekend, seeks to address the steep fall in Credit Suisse’s stock and bonds over the past week following the collapse of smaller US lenders. A liquidity backstop by the Swiss central bank in the middle of the week failed to end a market drama that threatened to flee clients or counterparties, with potential implications for the wider industry.
“It was imperative that we acted quickly and found a solution as quickly as possible,” Thomas Jordan, president of the Swiss National Bank, told a press conference.
Bloomberg previously reported that US authorities are working with their Swiss counterparts as both lenders have operations in the US and are considered systemically important in Switzerland. Officials sought an agreement before markets reopen in Asia.
UBS had earlier made an offer of about $1 billion, or 0.25 francs per share, for Credit Suisse, which the firm rebuffed, people with knowledge of the matter said earlier on Sunday.
UBS agreed to soften a material adverse change clause that would void the deal if its credit default jumps, the FT reported, people familiar with the matter said. The material adverse change clause applies for the period between signing and closing of the deal, the people said.
The takeover of the 166-year-old lender is a landmark event for the nation and global finance. The former Schweizerische Kreditstalt was founded in 1856 by the industrialist Alfred Escher to finance the construction of the mountain country’s railway network. It had become a global powerhouse, symbolic of Switzerland’s role as a global financial centre, before struggling to adapt to the changed banking landscape following the financial crisis.
UBS traces its roots through approximately 370 separate institutions over 160 years, culminating in the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation. After emerging from a state bailout during the 2008 financial crisis, UBS built a reputation as one of the world’s largest wealth managers, catering to high and ultra-high net worth individuals globally.
While Credit Suisse avoided a bailout during the financial crisis, it has been marked by a series of explosions, scandals, leadership changes and legal issues in recent years. Clients pulled out more than $100 billion in assets in the last three months of last year as concerns grew about its financial health, and outflows continued even after it tapped shareholders in a 4-billion-franc capital raise.
— With assistance from Myriam Ballezou.
(Update with government guarantee, AT1 writedown in third paragraph.)
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