Banking giant UBS acquires Credit Suisse for $3.2 billion

Geneva — Banking giant UBS will buy its smaller rival Credit Suisse for $3.2 billion to avoid further market-shaking turmoil in the global banking sector, Swiss President Alain Berset announced on Sunday evening.

Berset called the announcement “of great importance for the stability of international finance”. An uncontrolled collapse of Credit Suisse would have incalculable consequences for the country and the international financial system.”

The Swiss Federal Council, the seven-member governing body that includes Berset, passed an emergency decree allowing the merger without shareholder approval.

Credit Suisse chairman Axel Lehmann called the deal “a clear turning point”.

“This is a historic, sad and very challenging day for Credit Suisse, Switzerland and the global financial markets,” Lehmann said, adding that the focus was now on the future, especially for Credit Suisse’s 50,000 employees, 17,000 of whom They are in Switzerland.

UBS chairman Colm Kelleher hailed the “tremendous opportunities” arising from the acquisition and highlighted his bank’s “conservative risk culture” – that of Credit Suisse, which is known for flashier, riskier gambles with bigger returns. He said the combined group would create a trust with more than $5 trillion in total invested assets.

Berset said the board had agreed to guarantee Credit Suisse a total of 150 billion francs ($162 billion) in liquidity, well above the publicly announced amount of 50 billion Swiss francs ($54 billion). But that didn’t seem like enough.

“We noted that the outflow of liquidity and the volatility of the markets show that the necessary confidence can no longer be restored and that a quick solution to guarantee stability is essential.”

Swiss Finance Minister Karin Keller-Sutter said the council “regrets that the bank, which was once a model institution in Switzerland and part of our strong base, could get into this situation at all”.

The combination of two of Switzerland’s biggest and best-known banks, which date back to the mid-19th century, is a lightning strike to Switzerland’s reputation as a global financial center, leaving it on the brink of a single national champion. in the banking sector.

As UBS buys Credit Suisse, UBS officials have said they plan to sell parts of Credit Suisse or downsize the bank in the coming months and years.

The Swiss National Bank has agreed to provide a 100 billion Swiss franc ($108 billion) loan with a federal default guarantee to support the deal, which is expected to close by the end of the year.

Berset said the Federal Council – Switzerland’s executive branch – had been discussing Credit Suisse’s long-standing plight since the start of the year and had held emergency meetings over the past four days amid concerns about its financial health that caused a major swoon. share price and raised the specter of the 2007-2008 financial crisis.

Investors and banking analysts were still digesting the deal, but one analyst did not welcome the news because the deal could tarnish Switzerland’s image as a global banking center.

“In an email, Octavio Marenzi, CEO of consulting firm Opimas LLC, dispelled a national reputation for prudent financial management, sound regulatory oversight and, frankly, being a little fussy and boring when it comes to investing.

Marenzi added that he expected Switzerland’s direct democracy model of government would likely result in court and voting challenges to the deal, which could result in further chaos.

Credit Suisse has been designated as one of the world’s globally systemically important banks by the Financial Stability Board, the international body overseeing the global financial system. That means regulators believe its unchecked failure would send ripples throughout the financial system, similar to the collapse of Lehman Brothers 15 years ago.

The deal follows the collapse of two major U.S. banks last week, which prompted a fierce, broad-based response from the U.S. government to prevent further banking panics. Still, global financial markets have been on edge since Credit Suisse’s share price began to slide this week.

Many of Credit Suisse’s problems are unique and do not overlap with the weaknesses that brought down Silicon Valley Bank and Signature Bank, whose failures prompted major rescue efforts by the Federal Deposit Insurance Corporation and the Federal Reserve. As a result, their fall does not necessarily signal the beginning of a financial crisis similar to the one in 2008.

The deal caps a highly volatile week for Credit Suisse, particularly on Wednesday, when its shares fell to a record low after its biggest investor, the National Bank of Saudi Arabia, said it would not put more money into the bank to avoid a regulatory stumble. it would kick in if its share went up by about 10%.

Shares fell 8% on Friday to close at 1.86 francs ($2) on the Swiss stock exchange. The share slid downward for a long time: in 2007 it traded at more than 80 francs.

The current troubles began after Credit Suisse reported on Tuesday that executives had identified “material weaknesses” in the bank’s internal controls over financial reporting late last year. That fueled fears that Credit Suisse would be the next domino to fall.

Although smaller than its Swiss rival UBS, Credit Suisse still wields considerable influence, with $1.4 trillion in assets under management. The firm has significant trading divisions around the world, caters for the rich and the wealthy through its wealth management business, and is a major M&A advisor to global companies. Notably, Credit Suisse did not need government bailouts in 2008 during the financial crisis, while UBS did.

Despite the banking turmoil, the European Central Bank on Thursday approved a big interest rate hike of half a percentage point to try to curb stubbornly high inflation, saying Europe’s banking sector has “resilient” strong finances.

Christine Lagarde, president of the ECB, says banks are in a “completely different situation than they were in 2008” during the financial crisis, partly because of stricter government regulations.

The Swiss bank has sought to raise money from investors and develop a new strategy to combat a range of problems, including bad bets on hedge funds, repeated shakeups in senior management and the spying scandal at UBS.

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Associated Press Writers Frank Jordans and Emily Schultheis in Berlin, Barbara Ortutay in Oakland, Calif., and Chris Rugaber in Washington, DC, contributed.