UBS signs $3.25 billion bailout deal for rival Credit Suisse

UBS has agreed to buy Credit Suisse for $3.25 billion after a frantic weekend of mediating by Swiss regulators to protect the banking system and prevent the crisis from spilling over into global financial markets.

The historic deal came five days after the Swiss institution struggled to end Credit Suisse’s deepening crisis that threatened to topple the country’s second-biggest lender.

A SFr50 billion ($54 billion) emergency credit line from the Swiss National Bank on Wednesday failed to stem a sharp fall in share prices, exacerbated by broader market turmoil caused by the sudden collapse of California-based Silicon Valley Bank.

“On Friday, the outflow of liquidity and market volatility showed that restoring market confidence was no longer possible and that a quick and stabilizing solution was absolutely necessary,” Swiss President Alain Berset said at a press conference in Bern on Sunday evening. “That solution was the takeover of Credit Suisse by UBS.”

UBS will pay about 0.76 francs for its own shares, which are valued at 3 billion francs, compared with an offer of 0.25 SFr, worth about $1 billion, rejected by Credit Suisse’s board. However, the offer is far below Credit Suisse’s closing price of 1.86 francs on Friday.

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The Swiss National Bank has agreed to offer UBS a 100 billion franc liquidity facility backed by a federal default guarantee as part of the deal, the Swiss finance ministry said. The government will also guarantee losses of up to SFr9 billion, but only after UBS has assumed the first loss of 5 billion francs on certain asset portfolios.

Credit Suisse’s Additional Tier 1 capital bonds are some 16 billion francs, designed to absorb losses when institutions get into trouble and to shift the risk of bank failure from taxpayers to investors.

Credit Suisse said in a statement on Sunday evening that the Swiss market regulator had decided to “write down” the bonds to zero.

This is a developing story. More to follow