Struggling Swiss banking giant Credit Suisse has agreed to be bought by its arch-rival UBS at a discount to Friday’s close price, after seeing a wave of customer deposits exit the bank.
The deal was announced by Switzerland’s president, Alain Berset, flanked 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 SNB said in a statement.
UBS UBS, -5.50% will buy Credit Suisse CS, -6.94% for 3 billion francs ($3.25 billion), or 0.76 francs per share, in an all-stock deal, the bank announced.
That compares to Credit Suisse’s CSGN, -8.01% closing price of 1.86 francs on Friday. The FT reported UBS initially bid just 0.25 francs per share.
UBS said it benefits from 25 billion francs of downside protection from the transaction to support marks, purchase price adjustments and restructuring costs, and additional 50% downside protection on non-core assets.
The deal does not need shareholder approval. The Swiss financial regulator said Credit Suisse’s AT1 securities, worth 16 billion francs, will be entirely written down.
“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 said either UBS or Credit Suisse can borrow up to 100 billion francs in a liquidity assistance loan, and Credit Suisse can also receive a liquidity assistance loan of up to 100 billion francs, backed by a federal default
The Federal Reserve has been working with its Swiss counterpart on the deal, as both banks have major operations in the U.S.
Keller-Sutter said she held talks with U.S. Treasury Secretary Janet Yellen and U.K. Chancellor Jeremy Hunt. Keller-Sutter said “many thousands” of Credit Suisse employees will be affected, pointing to job cuts ahead.
UBS said the combination of the two businesses is expected to generate annual run-rate of cost reductions of more than $8 billion by 2027. UBS Chairman Colm Kelleher said the investment bank will represent no more than 25% of risk-weighed assets.
Credit Suisse’s downfall occurred just days after the collapse of U.S. banks SVB Financial and Signature Bank. While Credit Suisse, as well as Swiss authorities, said they didn’t have the same kinds of problems, they also saw customers leave. After wealthy clients withdrew roughly $100 billion from Credit Suisse in the fourth quarter, they again began to see big outflows last week, the FT reported.
Credit Suisse has lost money for five consecutive quarters, reeling from losses to family office Archegos as well as having to freeze $10 billion of supply chain funds sold through the bank that were managed by Greensill Capital.