UBS agreed to buy Credit Suisse for USD 2 billion

the swiss bank UBS has agreed to buy ailing rival Credit Suisse for just over $2 billionafter a weekend of intense negotiations between the two banks, the government, the central bank and the regulatory entity, reported Financial Times and the agency Bloomberg.

Both outlets revealed that the all-share deal between the two largest Swiss banks will be signed Sunday evening and will be priced at a fraction of Credit Suisse’s Friday closing price.

According to the FT, shareholders will receive 0.50 Swiss francs ($0.54) per share, and the deal will close on Sunday, before the markets open in Asia.

This is double the 0.25 Swiss francs it had offered this morning, but well below Credit Suisse’s closing price of 1.86 Swiss francs on Friday.

According to the British financial newspaper, UBS agreed to double the amount initially proposed to overcome the reluctance of Credit Suisse and one of its main shareholders.

The merger of the two banking giants, which are part of the group of 30 banks considered key in the global financial system, should be completed and announced in time for the opening of the Asian markets. The hope is that the announcement will be enough to prevent a general panic.

Also, the Swiss National Bank has agreed to offer a $100 billion liquidity facility to Credit Suisse as part of the deal, according to two people familiar with the matter.

Credit Suisse’s fall shocked the global financial system last week as panicked investors dumped their stocks and bonds following the collapse of several smaller US lenders. Under pressure from the authorities, UBS, the main Swiss bank, must finish this Sunday the purchase of his rival, Credit Suisse, to avoid a debacle and a contagious wave of panic in the stock markets on Monday but the trading is not over yet.

To speed up the acquisition, the government even pledged to take emergency measures and plans to introduce legislation that will bypass the normal six-week consultation period required for UBS shareholders, so that the deal can be closed immediately.

Credit Suisse is one of the 30 largest banks in the world, and its spectacular stock market crash this week sent jitters through the financial world. who fears a contagion effect after the collapse of entities in USA.

Such a merger is a complex affair that would typically take months to complete.but under pressure from the authorities, UBS will have to close the deal in a few days.

The Swiss market opens on Monday at 0800 GMT and the merger is expected to have crystallized by then.

According to the agency Bloomberg, UBS requires public authorities to pay legal costs and potential losses that can amount to billions of Swiss francs.

The Swiss Executive has announced a press conference in the next few hours, supposedly with the intention of announcing the agreement, for which the purchasing bank would have required various guarantees.

Credit Suisse was born in 1856 to finance the development of the Swiss railway network, while UBS is the result of more than a century and a half of mergers of 370 banking entities, although the germ can be considered the Swiss Banking Society (SBS), a union of six Basel banks established in 1854.

The name Union de la Banca Suiza, from which UBS derives, was not used, however, until 1912, when two banks in the country joined, and the final merger that gave rise to the current banking giant, the largest in Switzerland, came in 1998, when SBS was integrated into it.

Despite the similar prestige of the two institutions over the past decades, UBS has grown into a much larger entity, with a current stock market capitalization of $77.6bn, compared with just $11.9bn for Credit Suisse.

This places UBS as one of the five largest banks in Europe, with a capitalization similar to that of the Spanish Banco de Santander or the French BNP Paribas, while Credit Suisse would be far below, approximately in 15th place among the main entities of the Old Continent.

UBS employs 72,600 workers worldwide, compared to 50,480 at Credit Suisse, which also announced last year that it would reduce its workforce by 9,000 employees as part of its restructuring program to try to get out of its financial crisis.

In Switzerland UBS has 200 branches, a figure that is reduced to more than half (95) in the case of Credit Suisse, although in recent times the true great contrast between the two entities is the balance of their businesses.

Both banks, in any case, are considered to be of “systemic importance” by the Swiss financial authorities, which is why they have been obliged since 2008 to come out to support them in the event that both, now merged into one, suffer problems again.

The main shareholders of UBS are markedly North American, starting with the American investment fund BlackRock (with a 5.23% stake) and the three firms that follow it in number of shares: Dodge & Cox (3.02%), Massachusetts Financial Services (3.01%) and Artisan Partners (3.15%).

Instead, Credit Suisse, since its 2022 capital increase was markedly dominated by shareholders from the Middle East: the Saudi National Bank (9.88% of the shares), the Qatar Investment Authority (5.03%) and the Saudi Olayan group (5%).

Keep reading: