Credit Suisse has accepted a takeover offer of over $2 billion by UBS, in a government-brokered rescue, the Swiss National Bank (SNB) announced on Sunday.
According to the deal, UBS will pay $2 billion in stock. This values Credit Suisse at CHF 0.76 per share, which is well below its CHF 1.86 closing price on Friday, Swiss Info observed.
The takeover was made possible with the support of the Swiss federal government and the Swiss Financial Market Supervisory Authority FINMA.
Based on the Federal Council’s Emergency Ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100 billion ($110bn).
The federal government can also grant Credit Suisse a liquidity assistance loan of up to CHF 100 billion backed by a federal default guarantee.
“By providing substantial liquidity assistance, the SNB is fulfilling its mandate to
contribute to the stability of the financial system, and it continues to work closely with the federal government and FINMA to this end,” SNB announced.
Credit Suisse takeover contains global crisis of confidence
The historic deal, reached after thriller negotiations throughout the weekend, aimed at containing a crisis of confidence that threatened to spread across global financial markets once trading would restart on Monday.
An earlier offer by UBS for $1 million was reportedly declined.
“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,” SNB noted.
Shares in Credit Suisse fell 24 percent on Wednesday after it said it had found “weakness” in its financial reporting. This prompted a general sell-off in European markets, and fears of a broader financial crisis despite the bank having secured a $54 million loan from SNB that same day.
The failure of Silicon Valley Bank and Signature, two much smaller regional lenders, the week before, shook investor confidence around the world.
Credit Suisse is a global systemically important bank
Founded in 1856, Credit Suisse is one of the biggest financial institutions in the world and categorized as a “global systemically important bank,” along with just 30 others, including JP Morgan Chase, the Bank of America and the Bank of China.
The venerable but troubled bank has half-a-trillion dollars in assets and more than 50,000 employees around the world.
Credit Suisse is “much more globally interconnected, with multiple subsidiaries outside Switzerland, including in the US,” wrote Andrew Kenningham, chief Europe economist at Capital Economics.
Credit Suisse is the first major global bank to be given an emergency lifeline since the 2008 financial crisis and its problems have raised serious doubts over whether central banks will be able to sustain their fight against inflation with aggressive interest rate hikes.
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